Ken Lewis says Bank of America (BAC) is quite profitable and he wants to start repaying TARP right away.
Oppenheimer analyst Chris Kotowski — who’s obviously trying to fill the shoes of his predecessor Meredith Whitney — says the bank will actually need to raise $36.6 billion more.
With investors reluctant to commit new funds to lenders, Bank of America is more likely to raise capital by converting preferred stock to common, or issuing 5.2 billion shares through the Treasury Department’s Capital Assistance Plan, said analyst Chris Kotowski in a report to clients today. Under the Treasury program, Bank of America may issue shares for $6.24 each, the report said.
“It is perhaps unusual to model highly dilutive equity raises into earnings forecasts, but we believe that in the current environment, until credit quality stabilizes and capital requirements are more precisely known, it is the prudent thing to do,” Kotowski wrote. Read the whole thing >
It’s pretty wild now the disparity of opinions on this stock. You have Bove saying it could return to all-time highs. Whitney says Ken Lewis has done a great job (except for the Merrill buy), Ken Lewis himsself talking about repaying TARP and now this guy saying they’re not even close.
We can’t wait for earnings to come out.
Update: Having had a chance to check out the report, it’s interesting that Kotowski takes a somewhat contrarian take on the bank’s problems. Merrill may in fact work out OK for the bank, he says, especially given the government’s backstop. It’s the core Bank of America commercial banking franchise that’s the trouble spot. This suggests that the stock would have been flensed this year, either way, Merrill acquisition or not.