Bank of America Needs $34 Billion
We got your stress right here: We won’t get the official stress test results until tomorrow, but the dollar amount needed to be raised privately at the House of Lewis is $33.9 billion dollars.
Alternatively, BofA could convert Uncle Sam’s non-voting preferred shares. That would give the taxpayer a significant, potentially majority stake in the company.
The info was leaked by an executive at the bank. My best guess is the bank is lobbying to get a lower stress test number.
19 banks are going through the stress test, and 10 are believed to need more capital.
Another report suggests that Wells Fargo needs to raise capital — despite recent statements from Warren Buffett: “Federal regulators are asking Wells Fargo & Co. to raise more capital after government “stress tests” showed the bank would have trouble surviving if the recession worsens.”
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Source:
U.S. Says Bank of America Needs $33.9 Billion Cushion
LOUISE STORY and ERIC DASH
NYT, May 5, 2009
http://www.nytimes.com/2009/05/06/business/06stress.html
Sources: U.S. Asking Wells Fargo To Boost Capital
Associated Press/NPR.org, May 4, 2009
http://www.npr.org/templates/story/story.php?storyId=103777070
May 6th, 2009 at 6:40 am
if we take the previous statement that 1/3 of all homes have no mortgage then the recent report by zillow.com on money.cnn.com suggests that 33% of all homes with mortgages are underwater.
the stress test now seems rather optimistic
May 6th, 2009 at 7:17 am
Yeah, but proof we’ve entered the twilight zone comes from the GM proposal to issue 60 billion new shares of stock to buy it’s way out of trouble. Another wonderful idea worthy of the inventor of the Chevy Vega and it’s constant companion, the oil cloud behind it. Diluted value is said to be 1 cent per share if everything is sold. This makes me wonder if there would be a minimum purchase requirement to cover printing, shipping and handling costs. I’m lining up for that one (Ha HA). I wonder if Uncle Stupid helped think that one up. And, I bet, they have to be sold NOW! or the sky will fall. Uncle Stupid will buy some, I bet. At par.
May 6th, 2009 at 7:28 am
wisedup: “Underwater” doesn’t mean “doomed to default” by any means. Most people will keep their jobs, and most of those who can will suck it up and make those payments. It’s those who are both seriously underwater AND looking at an upcoming option-ARM recast (or reset) that are worth worrying about.
May 6th, 2009 at 7:32 am
PUMP then DUMP….
I believe that this PUMP(on the overall state of the economy) was by virtue of a lesson learned in the past. When every politician, CEO, CFO, Pundit were negative, it had adverse effects on their personal wealth. They have learned that positive comments lead to positive stock returns. The twisting of words and green shoots bullshit is criminal. Insiders dumping shares. Kudlow laughing like a devil when he says we have turned the corner, “start buying stocks” makes me ill at ease.
I’m expecting some more short squeezes caused by manipulation of data and carting out the Brian Westbury’s of the world so he can get his clients out of the market.
May 6th, 2009 at 7:41 am
Many banks are doomed no matter what. We’re only in phase on: subprime.
Then we get other mortgages, CRE, Credit Cards…
On top of that, refinancing has been happening at lower rates… fixed for 15-30 years? Imagine the value of that if inflation takes off.
Imagine the number of defaults if deflation takes off.
May 6th, 2009 at 7:52 am
How does converting Preferred to Common RAISE CAPITAL? Please somebody explain to me why the following is wrong.
67¢ cents of preferred equity + 33¢ of common equity = $1 of total shareholder equity. Convert all the preferred to common and you still have only a $1 of total equity.
Sure, TCE is boosted, but how is further capital added to the balance sheet?
May 6th, 2009 at 8:04 am
Bank of America Exceeds Expectations!
May 6th, 2009 at 8:06 am
How does converting Preferred to Common RAISE CAPITAL?
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It’s all smoke and mirrors and accounting gimmicks.
Imagine a few months ago, if they had offered common instead of preferreds. Not sure they would have raised that much capital.
Now they’ll convert. Investors will believe that they don’t need to convert anymore so the banks will issue more prefs sometime down the road!
It’s all about suckering in the fool and his money. And it works EVERY time. Until there is no money left.
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http://www.financialpost.com/story.html?id=1254780
Investors prefer preferreds
Jonathan Ratner, Financial Post
Published: Thursday, February 05, 2009
Story tools presented by Reuters:
“There was a wave of new preferred issues in January as Canada’s biggest banks tapped the market to boost their capital reserves.
Investors are thirsty for yield as they decide what to do with the cash pulled out of equity markets, and Canadian financial institutions have been only too happy to comply with a surge in preferred-share offerings.”
May 6th, 2009 at 8:23 am
How does converting Preferred to Common RAISE CAPITAL?
Maybe they could charge a service fee for the conversion?
May 6th, 2009 at 8:23 am
What’d I say…now BofA is up in premarket…..
May 6th, 2009 at 8:24 am
the trend is still up for now, including any short term pull backs target remains 965-1000 on SPX, sure everyone here is up on the BAC news but the second half recovery crowd will help everyone else focus on stuff like this:
PBOC has hit the wires this morning, promising to increase the yuan’s exchange-rate flexibility while keeping it stable.
May 6th, 2009 at 8:44 am
Who’s leaking these results? Why isn’t the SEC on this like a hobo on a bologna sandwich?
May 6th, 2009 at 8:54 am
ZackAttack Says:
May 6th, 2009 at 8:44 am
Who’s leaking these results? Why isn’t the SEC on this like a hobo on a bologna sandwich?
reply:
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I prefer red beans and rice and, the way I make it, I leave people begging for more. I can’t recall the last time I ate bologna, and my recollection is not due to alcohol impairment.
May 6th, 2009 at 9:00 am
The whole process is a complete joke and anybody associated with administering these tests and stewardship over the results have had their credibility shot to hell. It’s become a prime SNL satire stuff. Frickin’ embarrassing.
May 6th, 2009 at 9:27 am
From down 11% to up 11% in less than 3 hours on a 50% dilution report. No, no step in help there, none at all. It’s the Truman show.
May 6th, 2009 at 9:32 am
I swear, it’s, almost, like you’d have to have this guy: http://pocketcalculatorshow.com/crazyeddie/
on TV explaining this to peep, b4 they’d ‘get it’..
much to your point Stuart..
May 6th, 2009 at 9:33 am
BoA is skyrocketing in the pre-open trading. C is following. So is the entire market, for that matter.
What is the reason for this, fundamentally speaking? How on Earth could this news be seen as a positive?
Or are the Supplemental Liquidity Providers maintaining a floor that gives the market the appearance of success and relief? If so , this would constitute fraud (false statement aka price, bad intent, desire to have investors rely on false bottom, investors relying on false bottom, and finally, damage when said false bottom eventually disappears and reality eventually returns). Of course, deniability abounds with the SLP program.
May 6th, 2009 at 9:39 am
If GM issues the 60 billion new shares, will GM stock be hustled as an As Seen On TV item with Billy Mays as the pitchman? ‘Shipping and Handling’will cover the distribution costs.
May 6th, 2009 at 9:50 am
Had lunch with a guy yesterday that talked about how much money he’d made buying financials on the dip, blah, blah, blah…then admitted he was down half in his portfolio and was trying to struggle back to even, taking risky bets to do so. I guess if you’ve lost half already, some would just figure, what the hell, there’s nothing much left to lose.
When I offered my dour views on the sustainability of any of this (particularly in the residential real estate market where I make my living) he started spewing nonsense about how he believes in America, basically propounding the American exceptionalism argument.
I told him the premise behind American exceptionalism–that liberty delegated to the lowest possible level (i.e., the individual) yields the greatest benefit to society–has been traded for the collectivization/nationalization of roughly half the US economy. We aren’t so exceptional that we can ignore the lessons of history and still prosper.
I suppose he’ll do well with his financials today. Until it all ends, and badly. It’s only a question of when.
May 6th, 2009 at 9:52 am
Goldman Sachs upgrades banking sector to attractive
Goldman Sachs upgrades Bank of America to outperform
UFB!
May 6th, 2009 at 10:20 am
@curmudgeon,
That’s probably a typical lunch convo of late. At least the guy you were with admitted he was down. Sadly most of the water cooler talk is ONLY about the “profits” made b/c they bought C @ .97.
Not normally mentioned that despite these huge gains they are still down 1/2.
May 6th, 2009 at 12:41 pm
The amazing thing isn’t the fact that all this is going on, it’s the fact that people are letting it go on because they are so incredibly afraid to deal with reality. That reality is that we have all been living a lie. It’s sort of like when you begin to realize that your significant other has been cheating on you but you are in the denial stage. You just can’t go there.
Americans are going to have to deal with the fact that their system is completely corrupt, that they have been totally sold out, wealth stolen, wealth producing capacity destroyed, debt plagued, chronically ill, drugged, ignorant, and utterly passive…GAME OVER.