Bank of America may face $34B gap
Regulators believe the bank needs to significantly boost its capital to withstand the economic downturn, reports say.
NEW YORK (CNNMoney.com) -- The U.S. government isn't due to reveal the results of its stress tests on banks until Thursday, but leaked results are painting a troubling picture.
Regulators have determined that Bank of America (BAC, Fortune 500) may need roughly $34 billion in capital to weather a more painful economic environment, several reports published late Tuesday said, citing sources familiar with the results.
A Bank of America spokesman declined comment on the matter.
The Charlotte, N.C.-based lender has received extensive assistance from the government to date, taking in $45 billion in taxpayer funds. Nearly half of that amount was injected into the firm earlier this year after the company realized the enormity of the losses it faced as a result of its purchase of Merrill Lynch last fall.
The new reports, however, suggested that Bank of America would not necessarily need to raise $34 billion in new capital. Rather, the bank may bolster its position simply by converting the government's preferred share stake into common stock.
Such a move, however, would severely dilute the bank's existing common shareholders. To offset that, Bank of America is believed to be considering the sale of certain assets, including its stake in China Construction Bank.
The government's view that Bank of America needs to shore up its capital position is likely to add pressure on Bank of America's chief executive Ken Lewis, who was ousted as chairman of the struggling bank last week.
Regulators are due to officially release the results of their so-called stress tests on 19 of the largest U.S. banks after the closing bell on Thursday.
In the run-up to the official release, speculation has been brewing that anywhere between 10 and 14 of the banks could be forced to boost their capital.
Regional banks -- including Birmingham, Ala.-based Regions Financial (RF, Fortune 500), Cincinnati's Fifth Third Bank (FITB, Fortune 500) and SunTrust Financial (STI, Fortune 500) of Atlanta -- are also widely believed to need more funding