Some bank experts say regional institutions will soon feel the pain already experienced by their larger brethren.
The Federal Reserve, in its initial report on the stress test of the country’s 19 largest banks last week, says the banks will need more capital to protect against additional losses if the economy fails to rebound.
So, several regional banks may need to sell common stock to the government or private investors.
Experts expect giant losses for Regions Financial of Alabama, SunTrust of Georgia and Ohio banks KeyCorp and Fifth Third, The New York Times reports.
The commercial and residential real estate bust and troubled corporate loans have weighed on these institutions.
As for Regions Financial, it recently increased its reserves to absorb future loan losses, but experts tell The Times that may not be enough.
In a recent report to clients, Morgan Stanley says the Fed will probably decide that SunTrust, KeyCorp and Regions Financial will need billions of dollars more of capital.
Bank of America and Wells Fargo stand in a “gray zone,” the report says.
Keefe, Bruyette & Woods recently said all 19 banks might need $1 trillion of fresh capital in total, The Times reports.
However, superstar bank analyst Meredith Whitney is bullish on the regionals.
“I think they will grow and consolidate,” she tells The Wall Street Journal.
“They will not be as big as the national entities… but they’ll be of a big enough scale.”
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