Fed cut banks' deficits after negotiations -report

CHICAGO, May 9 (Reuters) - The Federal Reserve reduced the size of capital deficits facing several banks before releasing the results of "stress tests" on the financial institutions, the Wall Street Journal said on Saturday.

The changes came after days of negotiations with the banks, it said. The Federal Reserve used a different method than analysts and investors had expected to calculate the required capital levels.

U.S. regulators told top banks on Thursday to raise $74.6 billion to build a capital cushion officials hope will restore faith in financial companies and set a course out of the deepest recession in decades.

The results of the tests -- which involved more than 150 regulatory officials poring over the books of the 19 largest companies -- effectively drew a line between healthy and weak, and quantified exactly how much those institutions struggling under the weight of souring loans must raise.

At least half of the banks pushed back against the preliminary findings of the tests, the Wall Street Journal said, citing people with direct knowledge of the process.

Citigroup's (C.N: Quote, Profile, Research) capital shortfall was reduced to $5.5 billion from about $35 billion after bank executives persuaded the Fed to include future capital-boosting impacts of pending transactions, the paper said.

Wells Fargo's (WFC.N: Quote, Profile, Research) shortfall was cut to $13.7 billion from from $17.3 billion and Fifth Third's (FITB.O: Quote, Profile, Research) was reduced to $1.1 billion from $2.6 billion. (Reporting by Mark Weinraub; editing by Mohammad Zargham)