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Creeping Nationalization

Banks do not have enough tangible common equity to make the grade on Tim Geithner’s stress tests.  That means the government will have to step in and bail them out.  I will call this creeping nationalization.

Paul Miller of FBR Capital Markets does a good job of explaining the issues at hand here in this video via Bloomberg. The long and short is that banks do not have enough common equity.  They are not going to get funds from the capital markets to top that equity up.  That means the government will have to step in and dilute common shareholders with taxpayers’ funds — a reality we have seen with Citigroup but that is coming to a bank near you.

About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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• Nationalization talk everywhere 23 Feb 2009
• Meredith Whitney says nationalization is wrong and banks will lose money 19 Feb 2009
• The nationalization of America’s mortgage problem 11 Sep 2008
• Yves Smith: Nationalization is what the FDIC is doing every week 21 Feb 2009