By David Mildenberg
June 2 (Bloomberg) — Bank of America Corp., the biggest U.S. lender, has raised almost all of the $33.9 billion demanded by regulators after last month’s stress tests and now expects to “comfortably exceed” that number.
The tally was increased by a $9.5 billion swap with private holders of perpetual preferred stock for about 704 million common shares, the Charlotte, North Carolina-based bank said today in a statement. The total raised stands at almost $33 billion, the company said.
Bank of America faces the largest capital gap among the 19 lenders stress-tested by U.S. regulators. The tests were designed to see how the banks would fare in a prolonged recession. Proceeds from Bank of America’s capital-raising transactions will be used “to reduce reliance on government support for the company,” the statement said.
The lender may need to raise $10 billion more because the Federal Reserve imposed an additional requirement on firms that want to repay funds obtained from the Troubled Asset Relief Program, according to reports today from analysts Paul Miller at FBR Capital Markets and Matthew O’Connor at Deutsche Bank AG.
“The government is making a distinction between the capital needed for the stress test and that needed to repay TARP funds,” Miller said in a report today. Before regulators will let banks repay TARP, they’re asking the lenders to raise common equity equal to 20 percent of the U.S. capital they received. He called this “very negative” for Bank of America, in which the U.S. holds a $45 billion stake.
“Ultimately, this means it will have TARP on its balance sheet for longer than most analysts predict,” Miller wrote. Chief Executive Officer Kenneth Lewis “keeps pushing back the date when he intends to repay TARP, and we think that this delay will continue.”
Morgan Stanley, JPMorgan Chase & Co. and American Express Co. plan to raise at least $7.7 billion after the Fed’s new demand. JPMorgan’s ratio of Tier 1 common equity — a measure of the bank’s ability to withstand losses — would be about 7.3 percent of assets after today’s capital raising and repaying $25 billion in TARP funds, while its Tier 1 capital ratio, which includes preferred shares, would be about 9.3 percent.
“These ratios may be the new targets for banks that seek to repay TARP,” O’Connor said in his report. Bank of America spokesman Scott Silvestri had no comment.
Wells Fargo & Co., ranked fourth by assets, would need to raise an additional $30 billion, while PNC Financial Services Group Inc., ranked seventh, would need $4 billion to $5 billion, O’Connor said. Wells Fargo is based in San Francisco and PNC is based in Pittsburgh.
Bank of America was little changed at $11.28 in New York Stock Exchange composite trading as of 11:27 a.m. The stock has rebounded from less than $3 in February.
To contact the reporter on this story: David Mildenberg in Charlotte at firstname.lastname@example.org