Tuesday, May 19, 2009

Regulators told Bank of America to raise $33.9 billion after conducting stress tests, the largest amount among the 19 banks examined

TO BE NOTED: From Bloomberg:

"Bank of America Raises $13.5 Billion After Stress-Test Verdict

By David Mildenberg

May 20 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, raised about $13.5 billion in a sale of common stock after U.S. regulators determined it needed more cash to weather an extended recession.

The bank issued 1.25 billion shares at an average price of $10.77 each, according to a statement yesterday. The Charlotte, North Carolina-based company plans to boost common equity capital by $17 billion through the sale of stock and by converting preferred shares mostly held by institutional investors, Chief Executive Officer Kenneth Lewis said May 7.

“The worst is over for Bank of America and it will have absolutely no problem raising more capital,” said Kim Yong Tae, head of overseas investment at Yurie Asset Management Inc. in Seoul, which manages $2 billion in assets. “The minute the U.S. government started pumping taxpayer money into lenders its financial-system risks started easing, and now are completely gone.”

Regulators told Bank of America to raise $33.9 billion after conducting stress tests, the largest amount among the 19 banks examined. Other banks ordered to raise capital include Wells Fargo & Co., which made an $8.6 billion offering, and Morgan Stanley, which raised $4 billion, both on May 8.

“We are pleased to have this portion of our capital plan completed,” Bank of America Chief Financial Officer Joe Price said in the statement. “This strengthens and diversifies our capital structure.”

Bank of America declined 48 cents, or 4.1 percent, to $11.25 at 4:15 p.m. in New York Stock Exchange composite trading. It has dropped 20 percent this year.

Raising Cash

Bank of America expects to add $10 billion more in capital through asset sales and at least $7 billion from improved pretax profits, the company said on May 7. Those numbers may change as the lender considers options to achieve its $33.9 billion target, spokesman Jerry Dubrowski said in a phone interview.

“There is no set formula in how much of each category we need to accomplish,” he said. “We have a target and we’ve talked about a number of different ways to get there.”

The company may post a $4 billion post-tax gain on the sale last week of 13.5 billion China Construction Bank Corp. shares, Keith Horowitz, a Citigroup banking analyst, said in a May 17 report. The lender is considering selling its Columbia Funds asset management group and First Republic Bank, a private bank acquired through its purchase of Merrill Lynch & Co.

Bank of America faces potential losses for 2009 and 2010 of $136.6 billion, or 10 percent of loans, under the Fed’s adverse scenario for the U.S. economy. The tests project an economic scenario much gloomier than most experts predict, Lewis said on a May 7 conference call.

“We are comfortable with our current capital position in the present economic environment,” Lewis said at the time. “The stress test asks what if the economy does much worse than most experts project.”

Goldman Sachs this week raised Bank of America to “buy” from “neutral,” saying the lender may earn 25 cents a share during the second quarter. The average estimate of 20 analysts compiled by Bloomberg is for a profit of 2.7 cents.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net"

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