Wonderful News: Banks are finally . . . wtf?

Discussion in 'Wall St. News' started by Ghostland, Apr 12, 2009.

  1. Financial stocks leading the way to--where?


    BofA May Need $36.6 Billion, Analysts Say
    April 8, 2009, 1:33 pm

    As Wall Street anxiously awaits first-quarter updates from the nation’s largest banks, analysts at Oppenheimer are predicting that Bank of America will need a big slug of new equity.

    BofA may need to raise nearly $37 billion in additional capital later this year, according to Oppenheimer’s team of banking analysts, which is led by Chris Kotowski following the departure of Meredith Whitney.

    In a report previewing the first-quarter earnings season, the Oppenheimer analysts lowered their profit estimates significantly for BofA, citing write-downs, charge-offs and other provisions that they think will weigh heavily on the company’s bottom line.

    The analysts said they expected the write-downs to send BofA’s ratio of tangible common equity to risk-weighted assets, a measure of its capital strength, to dangerously low levels, well beneath those of its peers.
    Stock chart

    As a result, the analysts say, BofA would need to raise $36.6 billion of new equity capital to bring the ratio in line with its peers, whose average ratio is about 6 percent.

    This is a familiar story for the banking industry: Citigroup was in a similar position back in February when its T.C.E. ratio cratered, forcing the government to convert its preferred shares, which had paid a handsome dividend, to common shares, in order to perk up the Citi’s T.C.E. ratio.

    A Bank of America spokesman told Dealbook on Wednesday that the firm disagrees with assumptions made by the Oppenheimer team, but he declined to elaborate.

    The Oppenheimer analysts said they believe BofA will not be able to raise the necessary capital by issuing more stock, so it will ultimately have to convert its preferred equity to common, similar to what Citi did a few months ago.

    If it can’t do that, the bank could raise the cash by using the Treasury’s Capital Assistance Plan. The report speculated that BofA could issue 5.2 billion shares at $6.24 each. The stock traded at $7.23 early Wednesday afternoon, down 1.6 percent from the previous day’s close.

    Banking analysts at Oppenheimer have not been shy about making tough calls.

    Ms. Whitney, the former lead banking analyst who left in February to start her own firm, was one of the first analysts on the Street to say that the banks would need to raise and conserve more capital because of the bursting of the credit bubble.

    But Ms. Whitney seemed to show a softer side on Wednesday. She told reporters in Toronto that while she thought Kenneth Lewis, Bank of America’s chief executive, made a mistake in acquiring Merrill Lynch — a major source of its current problems — she did not think that he should be removed from the top job.

    – Cyrus Sanati