U.S. regulators may compel as many as 14 of the nation’s 19 largest banks to raise common equity based on financial stress tests due to be completed next week, said Paul Miller, an analyst at FBR Capital Markets Corp.
The stress tests were never more than a whitewash for more government control over capital allocation. Even Warren Buffett acknowledges the obvious:
Berkshire Hathaway Inc. Chairman Warren Buffett dismissed the importance of the government’s stress tests of major U.S. financial institutions in helping him assess banks he invested in.
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“With banking, low cost money is the key,” Buffett said. “My guess is that would not be weighted like a whole bunch of little ratios of this or that.”
See how it pays to be cheap? Ask yourself which banks get to borrow at the lowest cost of obtaining capital. Hint: It may be the same banks that are chomping at the bit to repay their TARP injections early, Goldman Sachs chief among them.
