Bank of America (BAC) insists it has more than enough capital, but the market clearly disagrees.
The stock was pounded again today in an up market, dropping 8% to $6.42.
One analyst, Layla Peruzzi of Jefferies, thinks that Bank of America needs to raise an eye-popping $40-$50 billion.
Assuming most of this capital-raise came in the form of equity, the dilution would be severe: The bank’s market capitalisation is now only $65 billion. And the more the stock falls, the worse the dilution will get.
Of course, if Bank of America does end up needing more capital and suffers huge dilution while raising it, it has only itself to blame.
Three years ago, before the financial crisis, Bank of America’s stock was trading above $50, more than 7X today’s value. For two years after the financial crisis and disastrous purchase of Countrywide, the stock traded above $15, 2X today’s value.
So the company had plenty of time to store acorns for a rough winter.
But despite a near-death experience during the financial crisis two years ago, it never learned.
So now it’s back to the denial + death-spiral again.