Mr Cooper Group Inc fka COOP

[Doubledown22]

There was an article just released about BAC and it mentioned WAMU in it as a bank that was "well financed" but was still taken.

BofA shares climb despite reports of need for capital [The Charlotte Observer, N.C.]
12:17 p.m. 05/06/2009 By Rick Rothacker & Christina Rexrode, The Charlotte Observer, N.C. Provided By Knight Ridder/Tribune


May 6--Bank of America Corp. (BAC) shares are climbing this morning as investors absorb reports that the Charlotte bank reportedly needs $34 billion more in capital after the government's stress test.

A Bank of America (BAC) spokesman could not be reached for comment this morning. The bank's shares were up nearly 7 percent to $11.57 at 11 a.m.

The $34 billion in extra capital is higher than many analysts had been expecting, but apparently investors think the bank will be able to drum up the funds, either by selling assets, producing more profits or converting existing preferred shares into common stock. The bank has already received $45 billion in government loans, partly to stabilize its Merrill Lynch & Co. acquisition.

The government is expected to release the results of the stress tests of 19 banks Thursday afternoon, but the banks have been talking to regulators about the results for more than a week. The purpose of the test is to make sure banks have enough capital to absorb loan losses in an even deeper recession.

Bank of America (BAC) could partly fill its capital hole by selling assets. The bank is in the process of selling off First Republic, a small, high-end retail bank it inherited from Merrill. There's speculation that it will sell Columbia Management, an asset manager that has been losing money.

The bank could also sell Balboa Insurance, which it inherited when it bought Countrywide last year, said Andrew Marquardt of Fox-Pitt Kelton Cochran Caronia Waller. And it could reduce its stake in Grupo Financier Santander in Mexico and Banco Itau in Brazil, which together represent about $4.7 billion, Marquardt said.

Bank of America (BAC) also has $33.9 billion in preferred shares held by private investors, said Stifel Nicolaus analyst Christopher Mutascio. The bank could convert these shares to common stock, which would boost its capital levels and slash the costly dividend payments it has to make to preferred shareholders. However, that move would also dilute the value of the shares held by all investors.

The government still hasn't revealed some crucial details about the methodology of the tests, such as what levels of capital it will require banks to maintain. Typically, banks with a Tier 1 capital ratio of 6 percent are considered well capitalized, but the government has indicated it wants large banks to maintain higher levels.

Some analysts criticize how the definition of "well capitalized" can change, since it adds to uncertainty in the market. Others say it makes sense that capital standards can change. Wachovia Corp. and Washington Mutual Inc. were both "well capitalized" when they collapsed last year.

"It's like having enough beer at a party," said Steven Mann, a finance professor at the University of South Carolina. "If you've just got a couple of friends over, it's one thing, but if you've got a whole fraternity over, it's not going to be enough."

It's also unclear how much the government will reveal Thursday about the test results. Regulators have a tradition of secrecy when it comes to their communications with the banks. The FDIC does not reveal the names of the banks on its "problem list," because it doesn't want to cause a deposit run at the weaker banks. The Federal Reserve does not disclose which banks it surveyed for its quarterly loan report, because it wants to encourage the banks to be candid.

But since October, when the government began directly lending money to banks, the public has been rallying for greater disclosure from the banks.

"Since the government has a stake in these banks, they feel like they have the wherewithall to make this information known," Mann said.

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Copyright (c) 2009, The Charlotte Observer, N.C.