Bank of America faces a $34 billion gap in its capital as a result of the government stress test, according to the “person familiar with the situation” that is responsible for leaking news to the WSJ. $35 billion is a fairly large nut, it is equal to roughly half of the bank’s current stock market value. It seems unlikely that B of A can raise this amount of money in time by selling assets or more shares to the public, although it is reported in the FT today that it is weighing a sale of its $8 billion stake in China Construction Bank. Conveniently, the lock-in period expires tomorrow, the day the stress test results are officially released, so perhaps the beleaguered bank can announce the sale of its CCB stake side-by-side with the results of the test. Bank of America will more than likely need to convert the government’s preferred shares into common equity to satisfy the shortfall, leaving the government with a large stake, and diluting current shareholders. The stock is up around 5% on the news premarket.
Once the actual results are released, they will likely prove to be anti-climactic and investors will have to return to paying attention to mundane things like earnings and economic data. I’m not sure what Mr. Stress Test Leaker will do with all of his newfound spare time.