Treasury Secretary Timothy Geithner indicated that stress tests will show most of the 19 biggest US banks have enough capital and said those needing more may convert government preference shares into common stock as well as seek investments from private sources.
The Treasury chief, testifying at a congressional oversight panel on Tuesday, said each bank needing aid after the tests gauging their health would work with supervisors on the options, including tapping the $700 billion Troubled Asset Relief Program. Geithner also repeatedly stated that regulators — not the Treasury — are taking the lead on the exams.
The remarks helped ease investors’ concerns about the results of the reviews, including the risk of political interference and the prospect for widespread stock dilutions among the 19 banks under scrutiny. Financial shares jumped, sending benchmark indexes up the most in almost two weeks.
“Geithner wouldn’t have said what he said” at the hearing “if he were really concerned about the outcome” of the tests, said Mark Bronzo, a money manager at Security Global Investors, New York. “Investors recognise that there’s less of a headwind in terms of stock prices.”