News flash: Bank of America will need $35 billion (BILLION) in additional capital – which is a lot more than people expected the so-called government “stress tests” would require. The news has given the yen a boost this morning in Asia and is pushing down U.S. stock futures. With Tuesday’s U.S. stock market already showing signs investors are losing confidence, expect a lousy Wednesday. http://online.wsj.com/article/SB124158058615290821.html#mod=testMod
In effect, the U.S. government believes Bank of America isn’t sufficiently capitalized – that it doesn’t have enough of a financial cushion to protect the various constituencies that rely on its survival. How will Bank of America find the money it needs? It already got $45 billion from Uncle Sam,, which now owns a mountain of preferred shares in the bank, according to the WSJ. Some of this went to cover losses from its Merrill Lynch aquisition. If Bank of America sells assets and new shares, it will raise only a portion of the $35 billion it now needs, the newspaper says. It just might have to convert the U.S. government into a common shareholder in order to raise the capital it needs. The government would become the bank’s biggest shareholder and existing investors would be diluted. Sounds a bit like Citigroup, doesn’t it? In Asia this morning we’re trying to nail down whether Bank of America will sell some or all of its big stake in China Construction Bank. A lockup that has blocked it from selling will expire Thursday. The FT reports something’s in the works.The NYT quotes Bank of America’s chief administrative officer , J. Steele Alphin, as saying the final figure will be less than the $33.9 billion that newspaper cites: http://www.nytimes.com/2009/05/06/business/06stress.html?_r=1&hp
