Bank of America will need to raise between US$33.9 billion and US$35 billion in capital to maintain its financial stability, US media reported yesterday.
After days of negotiations, the government informed the banking giant it needs US$33.9 billion, the New York Times said, citing a bank executive. The amount is greater than what executives think the bank needs, however.
“We’re not happy about it because it’s still a big number,” said J. Steele Alphin, the bank’s chief administrative officer. “We think it should be a bit less at the end of the day.”
The Wall Street Journal (WSJ) meanwhile, citing people familiar with the situation, said US regulators told the Charlotte, North Carolina-based bank late on Tuesday that it needs to address a roughly US$35 billion capital shortfall.
Because the amount of capital needed exceeds what Bank of America could raise by selling more assets or shares to private investors, the bank may end up with no option but to convert government shares into common stock — meaning the US government would become one of the bank’s largest shareholders.
The federal government has already pumped US$45 billion in bailout cash into the ailing institution since the world economic crisis, which originated in the US, started to unravel last October.
The reports came ahead of results today from “stress tests” conducted by US authorities on 19 top banks, including their capital adequacy levels.
The WSJ has reported that 10 of the 19 banks subject to the tests may need to raise more capital. The exact number of banks required to raise more funds has not yet been determined, the financial daily said, but those affected could include banking giants Wells Fargo, Bank of America and Citigroup.
Meanwhile, Citigroup may have to raise between US$5 billion and US$10 billion in new capital to meet a US government requirement that it holds up to US$55 billion in capital, the New York Times said, citing people familiar with the matter.
The US government told Citigroup Inc that it would need between US$50 billion and US$55 billion in capital based on the results of government stress tests of banks, the newspaper said.
Citigroup is expected to need to raise capital as insurance against any further downturn in the economy, it said.
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