Bank of America in deep trouble after stress test
Bank of America (BAC) CEO Kenneth Lewis is facing a $34 billion headache this morning after financial regulators informed the bank that was the figure it needs to find now to pass the so-called stress test for viable financial institutions, the Wall Street Journal and New York Times report. BoA already has received $45 billion in capital from the federal government, some of it to cover the disastrous purchase of Merrill Lynch. "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," writes the WSJ. And that could force BoA to convert the government's preferred shares (that it received for the first bailout) into common stock and leave you and me as the majority shareholders. Perhaps then it's not surprising to read in the Financial Times that BoA is considering offloading its $8 billion stake in China Construction Bank before the end of the week. How desperate is BoA for cash right now? "People familiar with the situation said that BofA would gain an extra dividend payment of $200m if it held on to the stock until at least June 17," notes the FT.
BOA apparently came in last on the stress test, and needs to come up with some $30 billion more in cash to balance the books.
Raising that kind of money would be a tough sell even in best of situations, and BOA is not in a good situation. They have already taken a big government bailout and sold their easily disposable assets. So raising more cash now is going to be a problem.
Jay