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A scramble for funds after results are aired

Two of the nation's largest banks lined up new financing yesterday, just a day after the federal government made public the results of its "stress tests."

At a rally in Oakland, Calif., a foreclosure opponent works on a sign. Others criticized government efforts to prop up the nation's large banks.
At a rally in Oakland, Calif., a foreclosure opponent works on a sign. Others criticized government efforts to prop up the nation's large banks.Read morePAUL SAKUMA / Associated Press

Two of the nation's largest banks lined up new financing yesterday, just a day after the federal government made public the results of its "stress tests."

Also, a third bank announced its plans to raise money, while a credit-rating agency warned that a fourth would have to rely on more government bailout funds.

The flurry of activity was prompted by the stress tests on the nation's 19 largest banks and the government's conclusion that 10 of them must raise a total of about $75 billion in new capital to help them withstand possible losses in the event the recession deepens and more loans fall into default.

Each of the 19 banks has assets of at least $100 billion and was deemed by the Obama administration as "too big to fail" - that is, so big that the effects of its collapse would ripple through the financial system and cause a meltdown like the one that began early last year.

Critics of that concept have said failing banks should be closed rather being propped up with a government bailout. Eighteen of the 19 banks tested received taxpayer funds under last fall's Troubled Asset Relief Program, under which the government invested in hundreds of banks to try to revive frozen credit markets.

The White House told industry officials yesterday that it was leaning toward wanting the Federal Reserve to become the supercop for "too big to fail" companies. The administration made it clear it was not inclined to divide the job among various regulatory agencies, as suggested by industry and some federal regulators.

Treasury Secretary Timothy Geithner told the group that one organization needed to be held responsible for monitoring systemwide risk. He said such a regulator should be given better visibility into all institutions that pose a risk to the financial system, regardless of what business they were in.

Responding to Thursday's order to boost its capital, Wells Fargo & Co. said yesterday that it was raising $7.5 billion through a sale of 341 million shares of common stock at $22 apiece, boosting the amount it previously said it would raise by $1.5 billion.

Wells Fargo is based in San Francisco, but its acquisition in January of Wachovia Corp. made it the largest player in the Philadelphia area, with nearly 21 percent of deposits in the eight-county market.

The government said the bank needed to raise $13.7 billion to cushion it from another potential fall in the economy.

Also yesterday, Morgan Stanley said it would sell 167.9 million common shares for $24 each in an effort to raise gross proceeds of $4 billion. The company is also pricing an offering of $4 billion in bonds.

The New York company faces a $1.8 billion shortfall, according to the government.

Bank of America Corp., of Charlotte, N.C., said it would raise capital through asset sales, earnings in the coming quarters, and raising money from private investors. The government said the nation's largest bank needed $33.9 billion. The asset sales could bring in up to $10 billion and include its First Republic Bank unit, which it inherited when it bought Merrill Lynch & Co. late last year.

An additional $17 billion will likely be raised through the issuance of common stock.

But another of the institutions tested, GMAC L.L.C., the Detroit auto lender bailed out by U.S. taxpayers, will have to rely on the government to fill the $11.5 billion gap in capital found by regulators in the examination, Standard & Poor's Corp. predicted yesterday.

Goldman Sachs Group Inc. was one of the nine banks not required to raise more money. Company chairman Lloyd Blankfein told shareholders at their annual meeting that Goldman expected to "soon" repay the $10 billion in government loans it received last fall under TARP.