Bank of America Needs $36.6 Billion, Oppenheimer Says (Update1)
bloomberg.com
By David Mildenberg
April 8 (Bloomberg) -- Bank of America Corp., the largest U.S. bank, needs to raise $36.6 billion in equity to bring capital ratios in line with its peers, according to Oppenheimer & Co.
With investors reluctant to commit new funds to lenders, Bank of America is more likely to raise capital by converting preferred stock to common, or issuing 5.2 billion shares through the Treasury Department’s Capital Assistance Plan, said analyst Chris Kotowski in a report to clients today. Under the Treasury program, Bank of America may issue shares for $6.24 each, the report said.
Bank of America has already accepted two rounds of taxpayer support totaling $163 billion that included preferred stock purchases and asset guarantees. Chief Executive Officer Kenneth Lewis has said the Charlotte, North Carolina-based company will rebound from a fourth-quarter loss without more government assistance.
“It is perhaps unusual to model highly dilutive equity raises into earnings forecasts, but we believe that in the current environment, until credit quality stabilizes and capital requirements are more precisely known, it is the prudent thing to do,” Kotowski wrote.
Oppenheimer cut quarterly earnings estimates for Bank of America to 2 cents a share from 10 cents because of expected higher losses on credit cards and other loans. Among New York- based banks, JPMorgan Chase & Co. is likely to earn 16 cents a share, down from 29 cents, while Morgan Stanley may post a 59- cent loss, compared with a previous estimate of a 37-cent profit, Kotowski said in the report. He raised the profit estimate for Goldman Sachs Group Inc. to $1.29 from 99 cents.
Doubling Bank of America’s ratio of tangible equity capital as a percentage of risk-weighted assets to about 6 percent would put the company in line with the 6.3 percent average of the 25 largest U.S. banks, Kotowski said. |
