Citi, BofA reportedly told to boost capital

NEW YORK (CNNMoney.com) -- Government regulators have told Bank of America Corp. and Citigroup Inc. that the banks need to increase their capital reserves based on preliminary "stress test" results, according to a report published Tuesday.

The capital shortfall at Bank of America could amount to billions of dollars, the Wall Street Journal said, citing people familiar with the situation.

The newspaper said executives at both banks objected to the findings and are planning to respond with "detailed rebuttals."

The government conducted the so-called stress tests on 19 of the nation's biggest banks. The aim is to determine which banks are healthy enough to survive another financial shock and which will need additional government support.

According to the Journal, the findings suggest that government officials are using the stress tests to send a "tough message" to troubled banks.

Government officials said the banks directed to raise more capital shouldn't be viewed as insolvent, the Journal reported.

The additional capital is intended to cushion the banks against potential future losses should economic conditions worsen, and federal officials say they won't allow any of the top 19 banks to fail, according to the report.

Citi said in a written statement that it is prohibited from commenting on the test results until they are officially released. The results are tentatively scheduled to be made public on May 4.

Still, Citi said its "regulatory capital base is strong." It also restated its plan to conduct an exchange offer that it says will significantly improve its "tangible common ratios," or the ratio of tangible common equity to tangible assets.

"We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," Citi said.

Shares of Bank of America (BAC, Fortune 500) fell 6% in Tuesday trading, while Citi (C, Fortune 500) was down 5%.