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Quick Hits: $1.2 Trillion More for Credit Markets?

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Brief scrutiny of today's headlines.

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The US banking industry may need as much as another $1.2 trillion to improve liquidity in the credit markets, an analyst believes.

In greatest need of capital are Citigroup (C), Goldman Sachs (GS), Wells Fargo (WFC), JP Morgan Chase (JPM), AIG (AIG), Bank of America (BAC) and GE Financial (GE), says Paul Miller, an analyst at Friedman Billings Ramsey.

"Debt or TARP capital is not true capital," Miller says in a research note. "Long-term debt financing is not the solution. Only injections of true tangible common equity will solve the current crisis."

These companies have combined assets of about $12.2 trillion, but only $406 billion in tangible common capital. The additional money is needed to strengthen the balance sheets and allow the institutions to again extend credit, Miller says.

Mortgage problems led to a pullback in the debt markets and soon triggered a credit crisis, slowing economic activity worldwide and pulling equity markets down.

Banks are scrambling for new deposits and have raised interest rates in an effort to attract new money. Many banks now offer about 4% on a 1-year CD - but the effort hasn't attracted enough new money.

Miller says at least $1 trillion more is needed; perhaps as much as $1.2 trillion. Most of the money would have to come from the government.

At stake is the credit needed to keep the economy moving. Miller says it's likely to take 3 to 5 years for the financial system to work through the current problem.

No positions in stocks mentioned.
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