Bank of America $70 Billion Short of Capital After Stress Test

The group that performed the stress tests state that Bank of America May Need $70 Billion.

Bank of America Corp. needs $60 billion to $70 billion of capital, according to Freidman, Billings, Ramsey Group Inc. analyst Paul Miller, who cited stress tests performed by his firm.

Bank of America should consider converting its preferred shares to common stock, including $27 billion of privately held preferred “as soon as possible,” Miller wrote in a note to clients dated today. Miller said his firm’s versions of the stress tests were “somewhat tougher” than those by U.S. regulators.

Fed Pushes Citi, BofA to Increase Capital

The Wall Street Journal is reporting Fed Pushes Citi, BofA to Increase Capital

Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government's so-called stress tests of lenders, according to people familiar with the situation.

Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions. The two banks are planning to respond with detailed rebuttals, these people said, with Bank of America's appeal expected by Tuesday.

The findings suggest that government officials are using the stress tests to send a tough message to struggling banks. Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests. Analysts consider Regions Financial Corp., Fifth Third Bancorp and Wells Fargo & Co. to be among the leading contenders for more capital. Wells Fargo declined to comment.

If [Bank of America] is forced to bolster its capital, it could do so in one of several ways, including selling assets, selling more shares to the public or converting the government's preferred shares into common stock. That would boost the company's capital on paper but could also leave the U.S. government as Bank of America's largest shareholder while diluting the value of the stock held by existing shareholders.

Some bank executives have said that even after meeting with Fed examiners on Friday, they still don't understand details of the government's methodology for conducting the tests.

Taxpayers To Take Yet Another Hit

Bank of America, Citigroup, Wells Fargo, and Fifth Third Bancorp all need more taxpayer handouts.

Meanwhile Geithner proclaims the vast majority of banks are "well capitalized" as if the State Banks of Podunk, Nodunk, Bodunk, Modunk, and Hodunk counterbalance the shortfalls at Bank of America, Citigroup, Wells Fargo, and Fifth Third. They don't and it is disingenuous of Geithner to suggest so.

The most likely ways for the banks to raise capital are via dilution of Treasury owned preferred stock at taxpayer expense and via the Public Private Investment Plan (PPIP). The latter is a scam to heist taxpayers to the tune of hundreds of billions of dollars.

See Geithner's Plan Can Succeed, Geithner's Gift To Pimco, and Geithner's Galling (and Dangerous) Plan For Bad Bank Assets for details on Geithner's Heist America Plan.

Government officials stated today "that banks directed to raise more capital shouldn't be viewed as insolvent."

What else can it possibly mean when taxpayers have to pony up hundreds of billions of dollars every other month just to keep the banks running?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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