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BoA may need more to survive downturn
By Karey Wutkowski |
May 7, 2009, Thursday
|
Print Edition
Print Edition
REGULATORS have told Bank of America Corp it needs US$34 billion of capital to withstand a deep economic downturn, as the United States government prepares to release results of industry-wide stress tests.
The sum is roughly triple what the bank had been expected to need, an industry source familiar with results of the bank's stress test said.
The bank could raise capital by selling some or all of its 16.6-percent stake in China Construction Bank Corp, that country's second-largest bank. Bank of America has also said it may sell its First Republic Bank business.
If it cannot sell enough assets, the bank might have to convert some of the earlier government aid into common stock, making the government one of its biggest shareholders.
More capital
About 10 of the 19 large US banks tested may need more capital, according to a person familiar with official talks on the subject. Citigroup Inc may need as much as US$10 billion, a person familiar with the matter said.
The sources were not authorized to speak because the stress test results are not public. They are due late today.
Analysts say other banks that may need capital include Wells Fargo & Co, Fifth Third Bancorp, GMAC LLC, KeyCorp, PNC Financial Services Group Inc, Regions Financial Corp and SunTrust Banks Inc. Among the banks that may not are Bank of New York Mellon Corp, Goldman Sachs Group and JPMorgan Chase & Co.
If banks are required to raise more capital than expected, it may unnerve investors who had hoped the stress tests might show the industry was in less dire condition than feared.
But the release of test results should add more clarity about banks' health, and could prompt some investors who had been hesitant about investing to jump in.
Federal Deposit Insurance Corp Chairman Sheila Bair said she expects the results to be "confidence instilling."
Meanwhile, other investors may buy bank shares because they had been betting on declines, and need to buy shares to cover their short positions.
The government has spent three months doing stress tests on the 19 largest US banks to determine their capital needs.
The sum is roughly triple what the bank had been expected to need, an industry source familiar with results of the bank's stress test said.
The bank could raise capital by selling some or all of its 16.6-percent stake in China Construction Bank Corp, that country's second-largest bank. Bank of America has also said it may sell its First Republic Bank business.
If it cannot sell enough assets, the bank might have to convert some of the earlier government aid into common stock, making the government one of its biggest shareholders.
More capital
About 10 of the 19 large US banks tested may need more capital, according to a person familiar with official talks on the subject. Citigroup Inc may need as much as US$10 billion, a person familiar with the matter said.
The sources were not authorized to speak because the stress test results are not public. They are due late today.
Analysts say other banks that may need capital include Wells Fargo & Co, Fifth Third Bancorp, GMAC LLC, KeyCorp, PNC Financial Services Group Inc, Regions Financial Corp and SunTrust Banks Inc. Among the banks that may not are Bank of New York Mellon Corp, Goldman Sachs Group and JPMorgan Chase & Co.
If banks are required to raise more capital than expected, it may unnerve investors who had hoped the stress tests might show the industry was in less dire condition than feared.
But the release of test results should add more clarity about banks' health, and could prompt some investors who had been hesitant about investing to jump in.
Federal Deposit Insurance Corp Chairman Sheila Bair said she expects the results to be "confidence instilling."
Meanwhile, other investors may buy bank shares because they had been betting on declines, and need to buy shares to cover their short positions.
The government has spent three months doing stress tests on the 19 largest US banks to determine their capital needs.
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