Bank Of America Needs $60-$70 Billion More To Pass Stress Test

The Feds are telling Bank of America (BAC) that it needs to raise more cash, though nobody’s reported how much they have in mind. Obviously it’s more than Bank of America wants (or, more likely, is able) to raise, since the bank is filing an appeal.

So how much will they need?

Says FBR:

FBR believes that BAC will need at least $60 billion to $70
  billion to maintain a tangible common equity ratio above 3% at the end
  of 2010. We are basing our results on FBR’s stress test under a 12%
  unemployment rate scenario. Most major banks will find it very
  difficult to raise that kind of capital in today’s environment, and we
  believe the first line of defence would be to convert both private and
  TARP preferred to common equity
. FBR encourages BAC to convert the $27
  billion of private preferreds as soon as possible, as this will boost
  the tangible common equity ratio to roughly 4.3% today, reduce
  preferred dividend expense, and bring much-needed capital stability to
  Bank of America. This is consistent with our Underperform rating on
  BAC and $5 price target, equal to 0.5x tangible book value of $10.88.
  We expect that the shares will continue to trade at a discount to book
  until its capital structure is more stable and the risk of dilution is

If the Fed is still sticking by its 10% unemployment estimate, then presumably they wouldn’t require them to raise quite so much. Note that this strategy of converting preferreds to common is the same thing Citi did last time — though even that looks like it won’t prove to be enough.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.