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
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project