Regulators have determined that Bank of America Corp requires about $34 billion in new capital, the largest need among the 19 biggest US banks subjected to stress tests, said a person with knowledge of the matter. Bank of America fell 9 per cent in trading before US exchanges opened.
Citigroup Inc’s shortfall is more limited because the company already plans to convert government preferred shares to common stock, people familiar with the results said. JPMorgan Chase & Co doesn’t need a deeper reserve against losses, according to people familiar with that company’s result.
The banks may outline their strategies to add capital, or in other cases buy out government stakes, after the Federal Reserve publishes the stress tests results tomorrow. Companies requiring more capital could raise all the funds through conversions of preferred shares if they choose, the people said.
To the extent that there are banks that need capital, our hope is that many of them will be able to raise that capital through either private equity offers, or through conversions and exchanges of existing liabilities,” Fed Chairman Ben S Bernanke told lawmakers at a hearing in Washington yesterday. “The data we have are accurate reflections of the financial conditions of those banks.”
Banks that want to return money injected by the Treasury since October must show they can borrow from private investors without a Federal Deposit Insurance Corp guarantee, according to people familiar with the matter.
The Treasury will unveil conditions for repaying the Troubled Asset Relief Program money as soon as today, the people said on condition of anonymity. Banks generally must apply to the Treasury and secure permission from their bank supervisor in order to pay back the government. So far only a handful of smaller banks have done so.
Bank of America spokesman Scott Silvestri in Charlotte, North Carolina, declined to comment. Analysts’ estimates of the company’s shortage of common equity have ranged from zero to as much as $100 billion.
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Chief Executive Officer Kenneth D Lewis declined to discuss the stress tests at Bank of America’s annual meeting last week, citing the Fed’s instructions to banks. He said April 20, responding to an analyst’s question, that the company doesn’t expect to require additional capital.
Lewis, 62, was ousted as chairman on April 29 after shareholders rebelled against management’s handling of the Merrill Lynch & Co takeover.