Wednesday, May 6, 2009

Bank of America Faces $34 Billion Gap


Apparently the stress test didn't go well for Bank of America. The bank needs some $34 billion or so to shore up its ailing capital position. The Wall Street Journal, citing people familiar with the situation, said that an official announcement is expected Thursday after the market closes.

From the Journal:

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.

Dilution, anyone?

Read the rest of the story here.

33 comments:

  1. Ummm yeah...they're on the fail bus.

    I saw we (the people) recover what we can of the taxpayer money we've already funneled into their various gaping orifices and let them die the painful death they've been deserving for years now.

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  2. why not just give them 100 trillion dollars. That would shore up their financial posistion even more. Then they could give us all a $100,000 credit line to buy stuff and stimulate the economy.

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  3. I say I say I say (I'm on the fail bus too)

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  4. CS, BOA starting to look more and more like Citi. We've already doled out $45 billion to BOA. Now it needs another $35 billion.

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  5. Sam, throw a $5 million bone my way while you're at it.

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  6. And it's no surprise. We knew before that the government would be helping those that didn't pass the stress tests as spectacularly as they should have to shore up their capital positions. We can't have another panic running through the system, because no one has any confidence in the average world citizen to accept a nice, orderly dismantling of these monsters.

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  7. I wonder if anyone is surprised by the $35 billion shortfall. We'll see tomorrow when the market opens.

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  8. Of course people will be surprised. It was only a couple of weeks ago that BofA reported a profit of 2.8 billion.

    Anyone that bothered to pay attention knew that it was because the banks weren't required to mark their toxic assets to market, and so no bank's numbers reflected reality.

    The market will probably react pretty strongly. But the market is always hyper-reactive on a day to day basis. At this point, BofA is so beaten, is anyone other than speculators even holding it?

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  9. Will be interesting to watch the entire market tomorrow.

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  10. After one reads how the FDIC FORCED them to complete the Merril deal, we owe them as much as they need to get back on their feet

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  11. BofA took $3,500 from my Visa limit last month. I'll consider that my contribution to the cause.

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  12. The WSJ has changed their amount to $34B. I've changed the headline to reflect that change in their reporting.

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  13. It's all my fault BOA needs the money. I refused their offer to double my interest rate and instead closed my account. I've read of many others doing the same....

    That will be your next BOA story CM: "BOA cites need for an additional 20 billion in funds due to a steep decline in number of card holders"

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  14. Parkaboy, if that story ever comes to pass, I'll be here.

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  15. I've tried to keep my money away from BoA but wherever I run, they find me... first they took my MBNA card, next my mortgage with countrywide.. no matter where my debt is they find it, assimilate it in to their ceaselessly expanding quagmire and force their way into my pockets... it's not a bank, it's The Blob.

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  16. This is really getting to be old news with Bank of America and Citibank. It's almost to the point of insanity!! Not only does Bank of America need more money but Citibank also needs more too; just reported by CNN's Christine Romans, Money Specialist.

    The taxpayers are also being left holding the bag with Chrysler's bankruptcy as they can't repay, it was also stated on CNN just a few minutes ago.

    Well both BOA and Citi have raised rates, created opt outs, closed accounts and slashed credit limits; now what?

    CiifIcare

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  17. For BofA, It Could Have Been Worse

    http://dealbook.blogs.nytimes.com/2009/05/06/for-bofa-it-could-have-been-worse/

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  18. U.S. May Set a Debt Test for Banks

    http://www.nytimes.com/2009/05/06/business/06bank.html?_r=1&ref=business

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  19. http://market-ticker.denninger.net/archives/1013-BAC-More-Obfuscation-by-The-Media.html

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  20. Anon, thanks for the post. That's what I was talking about when I said (in my blog entry): "Dilution, anyone?"

    No way around it. Sucks to be a shareholder.

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  21. FYI, I am in the middle of finals. Hope no one minds that it's a bit slow around here this week.

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  22. Give all people in debt with Bank of America $34 billion dollars to pay off their debt.

    Problem solved for everyone.

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  23. welcome to the futureMay 6, 2009 at 1:54:00 PM EDT

    So BoA needs 33.9G$ in new capital (as stock) to get to a 4% equity to asset ratio. The asset is your credit card balance, home loan balance etc. They could get there by reducing card balances by 847.5G$, which is about 1/4, I think, of all US credit card balances. Their market cap is about 78G$; so selling 33.9G$ of stock will cause existing stockholders to lose 56% ((78-33.9)/78), but the only reason their stock has a nonzero price anyway is the expected value of government bailouts.

    Now many of their assets are bad assets, but that doesn't help the equity/asset ratio, because when an asset is written down, it comes out of both assets and equity. If they keep a 4% ratio, and you default on $1 on your card, they have to reduce other peoples balances by $24 to stay even.

    The whole world banking system is screwed insanely and beyond belief.

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  24. welcome to the futureMay 6, 2009 at 1:58:00 PM EDT

    Irving Fisher's debt-deflation theory is making a bigtime comeback.

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  25. Lets get rid of BOFA. Its a cancer, seriously. The news Creditmattersblog posted and all of the posts by DrewBert, parkaboy, caughshort, Sam, welcome to the future, and other Anons, shows BOA is stupid, incapable, incompetent, idiotic. The famous proverb comes to mind, "princes walking on the earth while idiots ride horses". Many of you are smart, thrifty, "princes", while idiots like BOA play like they're smart and ride "horses", symbolizing their power over you. Seriously, I want to have more posts of good banks so I know where to bank and get loans from. SO Bofa and other failing banks can get the message from us that they suck, and should get out of the business. I'm shutting down all my business with BOA and Citi and moving elsewhere to better-performing banks.

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  26. CreditMatters,

    If things keep going the way they are, you are going to owe Sam 5 milloion in Taxes, along with the rest of us.

    Dougwood

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  27. Welcome to the futureMay 6, 2009 at 8:34:00 PM EDT

    Oops. It should be "current tockholders will lose 44%".

    Drewbert: The 34G could only be used to buy stock, not pay debt. Because of the 25:1 leverage, paying off debt would take about 850G.

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  28. Ha! I hope they fall under and die a slow, painful death. They're a terrible bank that's been ripping customer's off for years! And, they hold my credit union's credit card portfolio and treat my members like scum, so I'm not really feeling very generous towards them. I suspect the government will step in and bail them out, because that's what they've been doing; however, I think it's a bad idea. Not sure what the correct answer really is, but something tells me B of A has been mismanaging more then just the Merrill Lynch deal they were forced to take on. Tomorrow will be an interesting day.

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  29. Good Luck on your finals CM!!
    CiifIcare

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  30. Thanks, Ciif. I'm already half way done. Tomorrow evening I will have completed four of six. Heading down the homestretch.

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