BofA told to raise $34bn of new capital

Bank of America needs to cover a capital hole of $34bn (£23bn), it will be revealed today, as the Obama administration unveils the results of "stress tests" to determine the strength of the country's financial system. But the bank insists it can raise most of the money by selling assets or issuing new shares, and says that converting taxpayer funds into common stock, a move that could make the US government its dominant shareholder, would be a last resort.

Results of the tests, carried out on the 19 largest US banks, will be announced after the market closes tonight. But 10 of them are understood to have been deemed to need an extra cushion of capital. The biggest shortfalls are at BofA, Citigroup and Wells Fargo bank. Citigroup may have to find up to $10bn of additional capital, reports say, while Wells Fargo could need $15bn (£10bn). American Express and JP Morgan Chase are understood to have been told they do not need additional capital.

The financial check-up is a key part of the administration's efforts to shore up confidence in the financial system. In essence, it measures the capacity of banks to withstand a continuing economic slump that might mean further heavy losses in areas like commercial real estate and credit card lending.

BofA's problems mainly stem from its acquisitions last year of Merrill Lynch and the mortgage lender Countrywide Financial. It has already received $45bn of taxpayer funds under the government's troubled asset relief programme (Tarp), but its chief executive, Ken Lewis, maintains it will not have to ask the government for any more.

Yesterday BofA executives said the capital requirement determined by the test was too high. But even if it remains at $34bn, they believe it can be largely covered by asset sales. First to go could be the bank's stake in China Construction Bank, valued at $8bn. Other possible disposals include holdings in Black Rock, the asset management firm, and First Republic bank.

Under Tarp, the government receives convertible preferred shares in return for the funds it injects into troubled banks. If BofA takes that route, and raises the full $34bn by converting such shares into common stock, the US would own 46 per cent of the bank. Such a step would probably throw the future of Mr Lewis into fresh doubt. The Obama administration has said it would change the top management of banks that receive "exceptional" aid from the government.

Today's report is expected to find that other institutions, including Goldman Sachs and Bank of New York Mellon, are properly capitalised, and thus in a position to repay Tarp money. But first they will have to show they can issue debt without the government guarantees extended last autumn, when the financial system was on the verge of collapse.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power