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Bank of America Tumbles To Paulson's Cost Basis Following Report Bank Will Need $50 Billion More In Capital Cushion

Tyler Durden's picture


A few days ago when we demonstrated the most recent bond issuance by Bank of America in which the firm issued $2.5 billion in new bonds, we said "BAC is largely underreserved for a settlement of this size which means its Tier 1 capital ratio will likely be impacted due to a major outflow of cash." Obviously the implication was that a capital raise is imminent. And while we were not exactly expecting the bank to access the equity capital markets (immediately), we knew cash would have to come from somewhere. Sure enough, Bank of America just issued $2.5 billion in 5 year bonds. So just when does the equity raise come? Two questions: is this funding simply to replenish the cash to have a decent Tier 1 ratio, or is the bank merely preparing for a waterfall of litigation now that the seal has been broken?" Well, the reason why the bank's stock just tumbled to fresh multi-year lows, and just on top of John Paulson's cost basis is a report from Bloomberg's Hugh Son which confirms our worst fears about the bank: "Bank of America Corp. (BAC) may have to build its capital cushion by $50 billion and renege again on Chief Executive Officer Brian T. Moynihan’s pledge to raise the firm’s dividend as mortgage losses drain funds." Next up, after investors balk to buy bonds from the firm at preferential rates, is Bank of America coming to market with another equity raise in full confirmation that the emperor is indeed naked... and Moynihan is about to be sacked.

Other highlights:

Expenses tied to soured home loans may total $20.4 billion in the second quarter, pulling the bank further from capital ratios…The gap may equal 2.75 percent of risk-weighted assets starting in 2013 -- at about $18 billion for each percentage point -- crimping Moynihan’s ability to raise dividends and repurchase shares… “I’m hard-pressed to see meaningful capital redeployment.”…Moynihan has to achieve a 9.5 percent ratio of capital to risk-weighted assets between 2013 and 2019. That’s based on a 7 percent minimum and a 2.5 percent surcharge imposed by regulators…

Moynihan’s task was complicated after he underestimated how big the capital surcharge would be. The bank counted on 1 percentage point, an assumption based upon “fairly senior information saying that was a reasonable number to use,” Moynihan said in a June 1 conference. The 2.5 percent announced last month means an extra $27 billion burden…Bank of America last month cut its 2013 forecast of its capital ratios under the new rules to 6.75 percent to 7 percent, from 8 percent in April…likely that Bank of America will be left short on capital and be forced to sell new shares…To meet the 9.5 percent standard, the bank would have to hold about $171 billion in capital. That compares with $122 billion for the 6.75 percent ratio…

The lender still faces more mortgage-related costs that may sap capital. The five largest servicers may pay more than $20 billion to settle probes by the U.S. Department of Justice and 50 state attorneys general over shoddy mortgage servicing practices…Bank of America may also have another $5 billion in costs tied to repurchase demands from institutional investors and could face other expenses related to securities and fraud allegations on soured Countrywide loans, the company said.”

The only catalyst that can stop the rout in financials at this point: QE3. We give bank CEOs about one week before they realize this and start the lobbying pressure in front of the Marriner Eccles building.


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Mon, 07/18/2011 - 11:34 | 1466491 Ancona
Ancona's picture

Whoa Nellie!

Looks like BAC is terminally fooked.

Mon, 07/18/2011 - 11:38 | 1466515 Cognitive Dissonance
Cognitive Dissonance's picture

If they would just leave the fracking fractional fiat alone they wouldn't be so freaking fooked.

Mon, 07/18/2011 - 11:43 | 1466536 SheepDog-One
SheepDog-One's picture

Like telling a crack junkie 'Hey man, just put down the pipe'!

Mon, 07/18/2011 - 11:54 | 1466584 Cognitive Dissonance
Cognitive Dissonance's picture

They probably should have just said no to "Just say no". Sadly they didn't, which just goes to prove that bad ideas are addictive and make people significantly more stupid than they already are.

Look at me for the perfect example.

Mon, 07/18/2011 - 11:58 | 1466601 camaro68ss
camaro68ss's picture

Dam, i bank with BofA, well im cashing out.

Mon, 07/18/2011 - 11:55 | 1466586 francis_sawyer
francis_sawyer's picture


Long tongue depressors!

Mon, 07/18/2011 - 12:34 | 1466745 Cognitive Dissonance
Cognitive Dissonance's picture

That hurt my brain just from reading it.

Mon, 07/18/2011 - 12:52 | 1466827 jus_lite_reading
jus_lite_reading's picture

YUP I said months ago that BAC was FOOKED and it cant be saved. 

FWIW I did not junk you but it seems the junk monster is back.... hey TD can you ban this basturd from ZH?? PLEASE!

Mon, 07/18/2011 - 11:36 | 1466494 SheepDog-One
SheepDog-One's picture

To HELL with Blight on America someone shoot this pig and throw some lime on it!

Mon, 07/18/2011 - 11:36 | 1466497 SilverDoctors
SilverDoctors's picture

Tyler, Reuters reports that HKMEx just announced the launch of silver futures on Friday!

Mon, 07/18/2011 - 11:36 | 1466499 williambanzai7
williambanzai7's picture

Give or take $20 billion.

Mon, 07/18/2011 - 12:53 | 1466836 jus_lite_reading
jus_lite_reading's picture

THERE was a time when 20 BILLION was a lot of cash!!! NOW we laugh because everything is sooo fooked up

Mon, 07/18/2011 - 14:42 | 1467341 HungrySeagull
HungrySeagull's picture

20 Bil is still alot of money.

To those of us who have none.

Mon, 07/18/2011 - 11:41 | 1466529 WALLST8MY8BALL
WALLST8MY8BALL's picture

yeah The Trashury just replaced all the ink cartridges!

Mon, 07/18/2011 - 11:37 | 1466505 Cognitive Dissonance
Cognitive Dissonance's picture

Time to find a rich Saudi Prince to rescue BAC.

Mon, 07/18/2011 - 12:09 | 1466514 hedgeless_horseman
hedgeless_horseman's picture


Giant Squid stock down -24%+ YTD.  Economists expect Q3 and Q4 will be better...

Mon, 07/18/2011 - 11:39 | 1466517 SheepDog-One
SheepDog-One's picture

So 'all is well, recovery firmly on track'...well as long as we can take on at least $4 trillion in new debt and throw another $2 trillion minimum at the zombie banks and bubble markets...oh thats just GREAT!

Mon, 07/18/2011 - 11:39 | 1466519 oogs66
oogs66's picture

Citi's reverse stock split working like a charm too :)

Mon, 07/18/2011 - 11:39 | 1466521 snowball777
snowball777's picture

is this funding simply to replenish the cash to have a decent Tier 1 ratio, or is the bank merely preparing for a waterfall of litigation now that the seal has been broken?


c) all of the above

Fuck the Bank of Lynching America Countrywide and Paulson can suck a bag of unwiped assholes.

Mon, 07/18/2011 - 11:40 | 1466523 redpill
redpill's picture

Still have a decent sized account sitting over there...probably past time to move it...

Mon, 07/18/2011 - 11:40 | 1466528 Precious
Precious's picture

Screw BofA.  For that kind of money, we could bail out Greece.

Mon, 07/18/2011 - 12:07 | 1466649 SheepDog-One
SheepDog-One's picture

Thats the amazing thing isnt it? Here we have single companies that are in far worse bankruptcy than these entire countries problems everything hinges on daily.

Mon, 07/18/2011 - 11:45 | 1466547 Deepskyy
Deepskyy's picture

Couldn't happen to a nicer group of cocksuckers.

Die a slow death BAC and take the Morgue and Citi Farcenancials with you.


Mon, 07/18/2011 - 11:45 | 1466551 A Man without Q...
A Man without Qualities's picture

resolution authority, bitchez....

Mon, 07/18/2011 - 12:13 | 1466673 Bob
Bob's picture


Mon, 07/18/2011 - 11:46 | 1466556 BinAround
BinAround's picture

I't is not just BAC.  All financials are dropping today, and not just those with skimpy capital.  Look at what investors think of book value, P/B:  DB 66%; Lloyds 61%; Barclays 50%; Citi 61%; BAC 45%; JPM 87%; GS 99%.  As Clint Eastwood said "what we have here is a lack of communication". 

Mon, 07/18/2011 - 12:02 | 1466626 francis_sawyer
francis_sawyer's picture

When they eventually get the pre-prescribed "technical bounce"... Robo will be along to tell you about it...

Mon, 07/18/2011 - 12:20 | 1466696 snowball777
snowball777's picture

Clint Eastwood wasn't in Cool Hand Luke.

Mon, 07/18/2011 - 11:47 | 1466561 tony bonn
tony bonn's picture

citi will be happy to empty its loan loss reserves to help boa...its loan portfolio is so sterling and solid due to the booming recovery it is still predicting that it could more cover boa's troubled position...

boa is the most arrogant snot nosed asshole in the banking world outside of goldman sachs....boa people sicken me....they are nothing but punks.....i would love to see that bank go up in flames...

Mon, 07/18/2011 - 11:48 | 1466562 lolmao500
lolmao500's picture

Time to buy some US treasury short ETFs...

Mon, 07/18/2011 - 13:03 | 1466874 Larry Darrell
Larry Darrell's picture

at my house we use a much simpler mechanism.......ounces.

Mon, 07/18/2011 - 18:53 | 1468272 gillimus
gillimus's picture


Mon, 07/18/2011 - 11:49 | 1466565 SilverDoctors
SilverDoctors's picture

And it looks like BOA doesn't even need Wikileaks to help it fail.

Mon, 07/18/2011 - 12:10 | 1466638 francis_sawyer
francis_sawyer's picture

Sorry everyone it's all my fault...

I went in last Friday to my local branch & exchanged a $20 note for 10 rolls of nickles... 

As soon as I o the "patriotic" thing of BORROWING $20 at 27.98% interest + annual fee, the stock will recover...

Mon, 07/18/2011 - 11:50 | 1466570 jkruffin
jkruffin's picture

Say goodbye to the Euro risk trade,  back to 1.20 she goes and fast.....this little fake bounce the past half hour is crapola....short it on every fake bounce....the trouble is brewing...

Mon, 07/18/2011 - 11:55 | 1466593 Stoploss
Stoploss's picture

Finally shut mine down after ten years last week, they would absolutely not get off the 14$ acct fees.

Then they try to sell you something else that costs even more money to stay with them.

Bye, bye BAC.

Mon, 07/18/2011 - 11:58 | 1466605 High Plains Drifter
High Plains Drifter's picture

but but but, the tarp, the tarp..........

Mon, 07/18/2011 - 12:53 | 1466835 lincolnsteffens
lincolnsteffens's picture

The tarp has been left in a dark damp cellar and it has dry rot.Looks ok when you turn on the lights but if you try to pick it up it will fall apart in your hands. Sorry, might as well haul it to the dump.

Mon, 07/18/2011 - 11:59 | 1466608 f16hoser
f16hoser's picture

Should I stop paying them my monthly mortgage?

Mon, 07/18/2011 - 12:22 | 1466700 Piranhanoia
Piranhanoia's picture

Find out if they really have any rights to it, then you decide. 

Mon, 07/18/2011 - 12:02 | 1466628 Boxed Merlot
Boxed Merlot's picture

"soured home loans"..."more mortgage related costs"...

What's the big deal? DC just provided the solution. Any foreclosed property with defective, unlawful activity associated to the transfer is all good. Title companies are now rendered unnecessary and obsolete.

Fiat isn't limited to the concept of "money" ya know, it's equally or possibly better when used in the creation of law.

Git er done.

Mon, 07/18/2011 - 12:03 | 1466635 buzzsaw99
buzzsaw99's picture

The bonuses will be huge again this year.

Mon, 07/18/2011 - 12:10 | 1466658 hedgeless_horseman
hedgeless_horseman's picture

In nominal terms.  Real terms, not so much.

Mon, 07/18/2011 - 12:06 | 1466643 tip e. canoe
tip e. canoe's picture


Mon, 07/18/2011 - 12:13 | 1466672 spekulatn
spekulatn's picture

Mr. Tony at shares some technicals on BAC.

"Gap yet to be filled at $3.73."


Holy shi*!

Mon, 07/18/2011 - 12:14 | 1466674 Cruel Aid
Cruel Aid's picture

Didn't Obama force a load of bad mortgages on them via Merrill.

Probably insignificant compared to the Countrywide.

Mon, 07/18/2011 - 12:37 | 1466757 israhole
israhole's picture

Ahhh, Countrywide.  Orangelo Mozilo should be in prison with the rest of them!

Mon, 07/18/2011 - 13:13 | 1466919 citta vritti
citta vritti's picture

would that any of them were in prison

Mon, 07/18/2011 - 12:15 | 1466681 BlackholeDivestment
BlackholeDivestment's picture

Bank of America will no longer give out candy to the kids, instead, free Red Fez hats for everyone.

Mon, 07/18/2011 - 12:17 | 1466684 lolmao500
lolmao500's picture

S&P Cuts Bank of Ireland UK Government Bond Rating to A- from A+

Mon, 07/18/2011 - 12:18 | 1466689 grid-b-gone
grid-b-gone's picture

Now we know why they supported the $50 billion rainy day fund that was proposed for FinReg.

Mon, 07/18/2011 - 12:20 | 1466693 oddjob
oddjob's picture

short toasters.

Mon, 07/18/2011 - 12:31 | 1466731 lieutenantjohnchard
lieutenantjohnchard's picture

i like it when jpm $39.35 is less than silver $40.50. but that's just me.

Mon, 07/18/2011 - 12:32 | 1466737 JW n FL
JW n FL's picture


Israeli navy attacks intl. monitoring vessel in Gaza


Sun Jul 17, 2011 11:56PM

The USS Liberty incident was an attack on a U.S. Navy intelligence ship, USS Liberty, in international waters about 12.5 nautical miles (23 km) from the coast of the Sinai Peninsula, north of El Arish, by Israeli fighter planes and torpedo boats on June 8, 1967.


So! Let me Guess! Because Israel Behaves this way! I am a Nazi and its all my fault, right? Sure it is! Keep Up the GREAT WORK Israel!! Maybe you can kill a Lil Girl AGAIN! NEVER!! FORGET!!!

Mon, 07/18/2011 - 12:38 | 1466762 israhole
israhole's picture

I'm with you on the topic of terrorist Israel.  Never forget!

Mon, 07/18/2011 - 14:25 | 1467250 JW n FL
JW n FL's picture

The State of Israel spend more money on Congress and the Senate than Bank of America and ALL other bank COMBINED!


see below for how much Bank of America Spends.


I am not a Nazi, the Facts are the Facts.. so do with the real information what you will.


In most cases.. you will be watching 24 hours news in a few minutes and this huge Rape will be washed away by things you would like to hear pouring out of the speakers of your TV.

Mon, 07/18/2011 - 12:41 | 1466775 curmudgery
curmudgery's picture

Anyone with any deposits at any of the zombie TBTFs is helping them survive. Pull your deposits.  There are many community banks and credit unions who will treat you better.

Mon, 07/18/2011 - 12:43 | 1466787 monopoly
monopoly's picture

I realize the convenience all, but still, why would any of you deal with a broken insolvent bank that has destroyed the lives of millions due to greed. There are plenty of small banks that are sound that would love your business. I closed out all personal and business accounts with these parasitic squids 2 years ago and feel good about it. And the hidden charges from these thieves are mind boggling.

On another note, why would any investor with an IQ over 50 buy a bond from these rapists. Well, maybe at 30% eg. Greece, but otherwise makes 0 sense. Like most of this country.

Mon, 07/18/2011 - 12:49 | 1466800 Flounder
Flounder's picture

This can't be true.

"The banks in Spain were run like little imitations of Countrywide Financial, the doomed US mortgage lending that was acquired by Bank of America in 2008, only with worse credit underwriting and record keeping."

"Indeed, to compare the largest banks in Spain to Countrywide does serious injustice to the American lender. Bad as some of the Countrywide loan production may have been, my view is that the poor credit underwriting and fraud seen in the Spanish real estate boom makes the American experience seem sublime by comparison."


Mon, 07/18/2011 - 12:55 | 1466845 PulauHantu29
PulauHantu29's picture

Yes, and many bankers are still taking home Multi-Million Dollar Bonuses despite running their banks into insolvency.....hard to believe the Fed will hand BAC even more money....incredible by some accounts.

Mon, 07/18/2011 - 13:37 | 1467031 Jumbotron
Jumbotron's picture

As the Who sang....

"Meet the new TARP...same as the old TARP."


Mon, 07/18/2011 - 14:15 | 1467188 Riquin
Riquin's picture

Mon, 07/18/2011 - 14:20 | 1467217 JW n FL
JW n FL's picture

Bank of America


The two biggest recipients of taxpayer bailout funds are, by no coincidence, huge users of the offshore system: Citigroup has 427 subsidies in tax havens, and Bank of America has 115.

BANK OF AMERICA: In 2009 and 2010, Bank of America didn't pay a single penny in federal income taxes, exploiting the tax code so as to avoid paying its fair share. They argue this is because they lost money. But we really don't know, thanks to over 115 subsidiaries in tax secrecy jurisdictions. There are 59 BoA subsidiaries in the Cayman Islands, 15 in Luxembourg, and 14 in Ireland. Bank of America received $336 billion in government bailout funds (second only to Citigroup).3 When it comes to paying their top managers and influencing elections and government, they don't hold back. Between 2007 and 2010, during the economic meltdown triggered in part by their reckless actions, Bank of America's PAC and employees donated $5.184 million to federal campaigns. During these same years, they spent $17.3 million lobbying the federal government.4 Bank of America paid their CEO Thomas Montag $29 million in 2009.


Why Banks Are Investing More In Tax Liens

In May and early June, Bank of America and a Wall Street hedge fund, Fortress Investment Group, bought hundreds of millions of dollars of tax liens in Florida from a series of online auctions. Both BofA and Fortress bought their liens under different aliases — and sometimes bid on the same parcels more than 8,000 times.


The Big Business Wall Street Won't Discuss



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Mon, 07/18/2011 - 14:44 | 1467355 HungrySeagull
HungrySeagull's picture

It's interesting.

I am glad that one BAC check cleared.


Never again.

Mon, 07/18/2011 - 15:16 | 1467551 Jumbotron
Jumbotron's picture

Holy crap JW n FL !

You posted should be entitled.....

"Everything you need to know about Fascism in America"

Jumbotron n FL

Mon, 07/18/2011 - 18:11 | 1468167 Buck Johnson
Buck Johnson's picture

Yep, QE3 is on it's way.  They know but it won't help in the long run.

Mon, 07/18/2011 - 22:02 | 1468826 WebWeasel
WebWeasel's picture

Murdoch AND BAC. I'm having a schadenfreudegasm.

What a great week to join Zero Hedge.

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