US regulators have told Citigroup and Bank of America that they both must raise billions of dollars of extra capital, a report based on leads from the recent stress tests suggests.
The stress tests on the banks undertaken by the US government recently found that both Citigroup Inc and Bank of America Corporation may need to raise more capital, The Wall Street Journal reported.
Besides Citigroup and Bank of America, the Journal said, the US government conducted stress tests on 17 other major banks and preliminary results suggest the financial crisis may last longer than expected.
The stress tests were meant to identify individual strengths of the financial institutions and to see how well are they positioned to ride out the slump.
The final results of the stress tests are due to be published next week. In the meantime, the Federal Reserve has asked banks to estimate their losses based on several economic scenarios, in which GDP, unemployment and house prices fell by varying amounts.
Banks that have been asked to raise more capital after the stress tests are unlikely to be declared insolvent, according to WSJ. Both Citi and Bank of America are also under heavy pressure from shareholders to shore up finances.
There is also pressure on chief executives of both banks. While chief executive Vikram Pandit has been criticised for not cleaning up Citi's balance sheet faster, Bank of America's boss Ken Lewis could be ousted, the report said.
While Pandit has voluntarily abstained from taking any remuneration until Citi comes out of the woods, Bank of America shareholders are furious that Lewis paid $50 billion (£35bn) for Merrill Lynch before finding out Merrill's actual loss in the crisis.
Both Citi and Bank of America has contested preliminary findings of the stress tests and are planning defence with detailed rebuttals, the paper quoted sources as saying.
While most of the 19 banks have capital levels well in excess of the minimum required to be deemed well capitalised, Fed said heavy losses had lowered capital and choked off lending.
The 19 banks tested include JPMorgan Chase & Co and Wells Fargo & Co and hold two thirds of the assets and more than half of the loans in the US banking system. The results of the tests are due to be released during the first week of May.