Reuters U.S. test banks need capital but face manageable losses

WASHINGTON (Reuters) - U.S. regulators are working with the top 19 banks on Tuesday to put the final touches on the results of regulatory stress tests, which are expected to reveal about half the banks need more capital but face manageable losses.

The results -- due to be unveiled on Thursday -- will likely show that the largest U.S. banks do not need dramatic new government interventions, which could further drive the recovery of banks' stock prices and signal an exit strategy for the government's intimate involvement in the sector.

Federal Reserve Chairman Ben Bernanke told lawmakers on Tuesday that those banks needing to raise more capital can do so through the private sector.

"I've looked at many of the banks and I believe that many of them will be able to meet their capital needs without further government capital through either issuance of new capital or through conversions and exchanges or the sales of assets and other measures that would raise capital," Bernanke said.

Michael Poulos, head of the financial services practice at consulting firm Oliver Wyman, said the markets are also looking more positively at the banks undergoing the stress tests. He said investors have mostly priced in what they expect to see.

"My sense is that where they've come out is more optimistic in terms of the ability of banks to recapitalize," Poulos said. "If you look at the biggest banks, their prices have tripled from the bottom, and I'm not expecting them to move much on Thursday."

The KBW Banks stock index, which includes about two dozen large banks, was trading down about 2 percent in morning trading on Tuesday but has almost doubled from its year-low seen on March 6.

About 10 of the banks will likely be directed to aim for a higher capital ratio that puts more emphasis on common equity, which is thought to better absorb losses, according to a source familiar with official talks.

Regulators plan to release the results late Thursday in a 150-page document with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner on hand to explain the findings. more...