June 1st, 2009

Bank of America Starts to Close In On $33.9 Billion Gap

The government stress test previously exposed the weakness of 10 of the nation’s largest banks. Among financing institutions that “failed” the stress test though, Bank of America appears to have the most deficiency estimated to be $33.9 billion.

Now, it appears that the bank is doing its best to plug this gap. Bank of America has already raised $26 billion, or around 76%, of the needed $33.9 additional capital they were required to raise. The banking giant has reached agreement swap $5.9 billion of non-government-owned preferred stock into 436 million common shares of stock. In addition, the bank might also issue an extra 564 million shares using the same procedure.

Another source of additional funding comes from the sale of its China Construction Bank Corp. shares which are valued at $13.47 billion. The bank may also sell other assets such as the First Republic Bank and Columbia Management Group business units to close the remaining deficiency.

How Much Did Participating Stock Holders Earn?

The Dow Jones Newswires have analyzed this strategy. It is revealed that preferred holders who joined the deal will received an estimated 82 cents worth of BofA shares for every dollar of preferred share. Currently, most publicly-traded preferred shares are traded in the market at 50 to 60 cents for every dollar.

Depending on specified shares, the actual conversion can fluctuate. In the first quarter, BofA had around 6.4 billion shares before it sold 1.25 billion shares, worth $13.47 at the earlier part of May 2009.

Other Big Banks Following BofA’s Lead

Banks in the same predicament including Citigroup Inc. and PNC has announced similar drastic measures. Citigroup has already augmented its common shares by asking their preferred shareholders to swap their holdings.

On the other hand, PNC which had been asked to raise $600 million is plugging their deficiency by selling 15 million common shares in the market. It is also interesting to note that the PNC, as the seventh largest bank, is planning to repay $7.6 billion back to the government immediately after it is deemed “appropriate”.

About the banks

Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other. It operates in 32 states, the District of Columbia and 30 foreign countries.