BofA Needs $44 Billion, Citi Pushes Joint Venture

Federal regulators found Bank of America (BAC), one of the major US banks faced with a government-initiated stress test, is lacking capital on the order of $33.9bn, a bank executive told the New York Times. Although executives said they consider the number larger than the bank actually needs, BofA has capital-raising alternatives to converting some of the $45bn in government capital through the Troubled Asset Relief Program (TARP) into common stock and consequentially giving the government partial ownership. “We’re not happy about it because it’s still a big number,” BofA’s chief administrative officer, J. Steele Alphin, told the Times. “We think it should be a bit less at the end of the day.” Along with BofA, at least 18 other major US banks participated in the stress tests and at least one other, Citigroup (C), is reported to need at least $10bn in fresh capital. Faced with capital needs, Citi has gotten a little creative. The latest report out of the bank is a decision to speed up the process in closing the joint brokerage venture with Morgan Stanley. The venture will bring in a $5.8bn gain, which would demonstrate to federal regulators Citi’s subsistence outside of additional government aid. The companies originally announced the joint venture between Citi’s Smith Barney and Morgan Stanley’s US brokerage division, set to close in the third quarter, making the largest retail brokerage with over 20,000 brokers, $1.7trn in assets, $14.9bn in combined revenues and $2.8bn in combined pre-tax profit. Citi is now looking to book the $5.8bn gain by a closing date of June 1, unnamed Citi workers told Bloomberg. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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