$10B Is Probably Manageable
Will three of the nation’s largest banks be able to raise about $10 billion to cover the capital shortfalls, as indicated by the government’s stress test results? Probably. There is enough of a growing sense on Wall Street that the worst of the recession is behind us that Citigroup, BofA, and Wells Fargo could probably find the capital (although the aggregate amount of capital the three banks will have to raise starts to push the envelope as far as investor appetite).
Here’s what TheStreet.com had to say today:
Bank of America, Wells Fargo and Citigroup shares sailed higher on Monday, despite reports that the three banks will need to raise new capital to pass government stress tests. BofA shares recently were gaining nearly 4.6% at $9.10, Wells was adding almost 7.7% at $21.11, and Citi was up 4.5% at $3.10 amid a broad market rally.
The Financial Times reported on Monday that BofA, as well as troubled competitor Citigroup, are each working to raise $10 billion in fresh capital to plug in balance-sheet gaps determined by regulators. The Associated Press reported later in the day that Wells would need fresh funds as well, though no specific amount was cited. Those reports, as well as others regarding capital shortfalls by the Wall Street Journal and Bloomberg on Monday and last week all cited anonymous sources.
Bank of America strongly asserted on Monday that at least one publication got the story wrong.
“The Financial Times report is completely inaccurate,” says spokesman Scott Silvestri. “Bank of America has not been given a final number by the Federal Reserve and the bank is not actively raising $10 billion in capital.”
Citi spokesman Jon Diat said “we are not commenting on rumors and speculation.” A Wells Fargo spokeswoman also said that firm would not comment on capital concerns.
It is fairly clear that BofA is going to need to raise some amount of capital. Investors are going to have to swallow the fact that the banks remain exposed to more credit losses and to a dull overall economic environment. Investing is about making money after all, not “supporting America,” as President Obama suuggested last week.
