The Tally Continues: Six Banks Need Capital

Of the 19 largest US banks with assets in excess of $100bn, at least six now require additional capital sources told Bloomberg News today. The money will be needed by the banks in order to weather projections of a more severe, longer-lasting recession. A much higher number of banks with assets under $100bn will need some cash too, according to a financial advisory firm. Days ahead of the public release of stress test results scheduled for May 4, reports began circulating that Bank of America (BAC) and Citigroup (C) were among those in need of additional capital and facing three government-offered alternatives: raise private investor funds, receive additional government aid or convert the government’s existing preferred shares into common shares, effectively placing part of the firm in government ownership. Citigroup proposed several alternatives to effectively increasing government share of the company through a stock conversion. In an attempt to persuade the government of its viability outside of additional government capital, Citi suggested it would either sell business segments or ask investors to convert shares, sources told Financial Times. BofA, meanwhile, continued discussions with regulators to convert government shares, bankers told Financial Times. Identities of the remaining four banks in need of capital were not public at the time this story went to press. In addition to the six major banks, 17 of the 30 banks considered “regional” for their less-than-$100bn in assets may also need to raise additional capital or seek more government aid, according to a report published this week by Oppenheimer & Co. Rather than seeking private capital, the regional banks in need could simply convert existing government  and private preferred shares to common equity to raise sufficient funds, according to a MarketWatch analysis of the study. 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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