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Bank of America may need more than $80 billion of new capital



January 20, 2009 – Comments (0) | RELATED TICKERS: BAC , WFC , USB

A Marketwatch article quotes a Friedman, Billings, Ramsey analyst who believes that BoA may need as much as $80 billion of new capital.

 If Bank of America needs a third capital injection from the government, the terms are likely to be on par with AIG. My wild guess is that the bank would probably be worth approximately today's stock price of $5. I'd said earlier that I thought BAC was evolving into a possible deep value investment. Sorry, wrong.

At this point, I hope Ken Lewis is thinking of stepping down. Had he not bought Merrill, the bank would be in a far better position.  Even if BoA does not need to raise capital, things are so bad now that a lack of confidence alone could put the bank under (by scaring customers away from the investment bank, and perhaps even the retail bank).

 The same analyst said that he felt that Wells Fargo would have to cut its dividend. Indeed, the stock dropped considerably today. Jaime Peters of Morningstar echoed that sentiment. Wells Fargo would normally be relatively safe, but in buying Wachovia, they also bought an investment bank. Although that investment bank is small, Wells' capital ratio is also lower than its peers. Additional write downs on CDOs by everyone else would hurt them more.

At this point, the only safe major bank I can see is US Bancorp. They have no investment banking whatsoever. Never got into that stuff.  I would be interested in Wells, but I will wait for more info. Morningstar recently posted a video where they explain that they expect it's more likely that the US will return to the original TARP plan and buy up bad assets; the banking industry here is far too large and scattered to be nationalized. 

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