So reports the Wall Street Journal:

Regulators have told Bank of America Corp. that the company needs to take steps to address a roughly $35 billion capital shortfall based on results of the government's stress tests, according to people familiar with the situation. The exact amount of the needed infusion couldn't be determined late Tuesday, and Bank of America officials either declined to comment or couldn't be reached. Regulators began notifying the 19 financial companies subjected to the government tests of the results Tuesday. ... At Bank of America, the government's findings are likely to set off a scramble over how to fill the capital hole at the nation's largest bank in assets. The Charlotte, N.C., bank already has received $45 billion in capital from the federal government, some of it to help the bank cover losses stemming from its purchase of securities firm Merrill Lynch & Co. in January. The amount of capital now needed by Bank of America could exceed what the bank can raise by selling assets or more shares to the public. As a result, the bank may have no choice but to convert the government's preferred shares into common stock.
This isn't too terribly surprising. I think one of the biggest takeaways from the stress test results will be that BofA is in a lot worse shape than any other major U.S. bank, Citi included.

6 comments:

Anonymous said...

This can't be true. Ken Lewis told us that BAC didn't need to raise any new capital. If he wasn't telling the truth, surely the shareholders would have voted him out. ;-)

Anonymous said...

The reason Citi doesn't have to raise as much as BofA is because the government is already giving Citi credit for converted all that preferred stock to common (~$45 billion). The real results were that Citi needed at least $55 billion....and BofA needs "only" 35 billion.

Economics of Contempt said...

"The reason Citi doesn't have to raise as much as BofA is because the government is already giving Citi credit for converted all that preferred stock to common (~$45 billion). The real results were that Citi needed at least $55 billion....and BofA needs "only" 35 billion."

Is that actually the case? I've heard conflicting reports about that, and it's hard to keep track of all the leaks.

I'm just basing my prediction on numbers I've seen in various broker notes and analysts' reports. The consensus seems to be that BofA has about $80bn of residual exposure to CDOs, real estate-related securities (residential and commercial), and the monolines, which is about double Citi's exposure. BofA is drowning in CMBS, and I know the loss estimates Treasury used for commercial real estate in the stress tests were very high (12% I think?). That, and various chatter about BofA and the other banks, is why I think BofA will come out looking worse than any other major U.S. bank. I could be completely wrong though. Wouldn't be the first time.

Economics of Contempt said...

This can't be true. Ken Lewis told us that BAC didn't need to raise any new capital. If he wasn't telling the truth, surely the shareholders would have voted him out. ;-)

The sooner Ken Lewis is ousted the better, as far as I'm concerned. It's amazing that the board still expresses confidence in him even after Countrywide and Merrill. What does he have to do to get fired? Buy AIG? Or Fannie Mae perhaps?

Anonymous said...

we were holding
Diablo 3 Items planning to call anyone that ended up being really floated for your Court docket a fool. These folks have zero value intended for all judges since public servants, and probably less Runescape Goldregard for the legislations which they offer.

Wei Liu said...

Great and useful site! It's worthful in my lifetime~ Also, I think we should learn more in the future, so I choose this site to study!cheap phones Not only are there many friends, but also there are many resoures~