US Banks - Insolvent

From MoneyNews.com April 23, 2009

Pershing Square Capital Management fund manager Bill Ackman is betting that the share prices of big banks will decline.

He’s also hoping to give them a little push.

Ackman argues that banks like Citigroup and Bank of America are effectively insolvent, a view some economists share, but one the banks vigorously deny.

“The problem when you are CEO of a business is that you get used to being able to do anything you want, and you get a little bit too full of yourself,” Ackman told The New York Times.

Ackman is planning a media blitz urging banks' bondholders to exchange their debt for equity in order to shore up the institutions, a move that could well sink bank shares but boost Ackman's profits.

Ackman’s fund controls 25 percent of General Growth, the mall properties company that filed bankruptcy last week, and the firm will play a crucial role in restructuring the company, making it possible that Ackman and his investors could walk with hundreds of millions of dollars in profits.

Rumors ran rampant on the Web this week that bank-stress tests devised by Treasury Secretary Timothy Geithner show that 16 of the 19 big banks tested are "technically insolvent."

Geithner’s office released a statement saying that the results from the stress tests weren’t completed, yet damage to the stocks was already done. Since then, Geithner has testified that bank capital is “adequate.”