It is reported (NYT) that the regulators will be asking Bank of America to raise as much as $34 billion in new capital, the biggest from among the others who are insufficiently capitalized. Keeping in mind the infusion that the bank has already received from the government, that $45bn will be more than sufficient to cover this capital gap. However, allowing this to be converted into common equity will see the government become its controlling shareholder. The bank’s Chief Administrative Officer J. Steele Alphin said that “Bank of America would have plenty of options to raise the capital on its own before it would have to convert any of taxpayer money into common stock…”
The banks may outline their strategies to add capital, or in other cases buy out government stakes, after the Federal Reserve publishes the stress tests results tomorrow.
With regard to the firms already expected to pass and are hoping to repay the money, the report adds:
Banks that want to return money injected by the Treasury since October must show they can borrow from private investors without a Federal Deposit Insurance Corp. guarantee, according to people familiar with the matter.
The Treasury will unveil conditions for repaying the Troubled Asset Relief Program money as soon as today, the people said on condition of anonymity.
Early trading in Asia saw investors flocking to the yen and the greenback as risk aversion due to the news increased yet again. The two currencies rose against the euro while the yen climbed against the dollar the most for the week after the news was unveiled.
“The reported amount of capital needed by Bank of America is very large, causing risk aversion,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “As such, the yen and the dollar are being bought as ‘safe-haven’ currencies.”
As of 1am ET, US and most European markets are shaping up to open on the red, in a couple of hours for Europe and in a few for the US.