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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 | Link to Comment Ancona
Ancona's picture

Whoa Nellie!

Looks like BAC is terminally fooked.

Mon, 07/18/2011 - 11:38 | Link to Comment 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 | Link to Comment SheepDog-One
SheepDog-One's picture

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

Mon, 07/18/2011 - 11:54 | Link to Comment 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 | Link to Comment camaro68ss
camaro68ss's picture

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

Mon, 07/18/2011 - 11:55 | Link to Comment francis_sawyer
francis_sawyer's picture

Omg! Looks like THE SIXTH SICK SHIEK'S SIXTH SHEEP'S SICK!

Long tongue depressors!

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

That hurt my brain just from reading it.

Mon, 07/18/2011 - 12:52 | Link to Comment 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 | Link to Comment 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 | Link to Comment SilverDoctors
SilverDoctors's picture

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

http://silverdoctors.blogspot.com/2011/07/hkmex-to-launch-silver-futures...

Mon, 07/18/2011 - 11:36 | Link to Comment williambanzai7
williambanzai7's picture

Give or take $20 billion.

Mon, 07/18/2011 - 12:53 | Link to Comment 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 | Link to Comment HungrySeagull
HungrySeagull's picture

20 Bil is still alot of money.

To those of us who have none.

Mon, 07/18/2011 - 11:37 | Link to Comment lolmao500
Mon, 07/18/2011 - 11:41 | Link to Comment WALLST8MY8BALL
WALLST8MY8BALL's picture

yeah The Trashury just replaced all the ink cartridges!

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

Time to find a rich Saudi Prince to rescue BAC.

Mon, 07/18/2011 - 12:09 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

IN SIMILIAR NEWS:

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

Mon, 07/18/2011 - 11:39 | Link to Comment 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 | Link to Comment oogs66
oogs66's picture

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

Mon, 07/18/2011 - 11:39 | Link to Comment 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 | Link to Comment 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 | Link to Comment Precious
Precious's picture

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

Mon, 07/18/2011 - 12:07 | Link to Comment 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 | Link to Comment 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 | Link to Comment A Man without Q...
A Man without Qualities's picture

resolution authority, bitchez....

Mon, 07/18/2011 - 12:13 | Link to Comment Bob
Bob's picture

+1

Mon, 07/18/2011 - 11:46 | Link to Comment 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 | Link to Comment 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 | Link to Comment snowball777
snowball777's picture

Clint Eastwood wasn't in Cool Hand Luke.

http://www.youtube.com/watch?v=SnO9Jyz82Ps

Mon, 07/18/2011 - 11:47 | Link to Comment 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 | Link to Comment lolmao500
lolmao500's picture

Time to buy some US treasury short ETFs...

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

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

Mon, 07/18/2011 - 18:53 | Link to Comment gillimus
gillimus's picture

+oz

Mon, 07/18/2011 - 11:49 | Link to Comment SilverDoctors
SilverDoctors's picture

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

Mon, 07/18/2011 - 12:10 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment High Plains Drifter
High Plains Drifter's picture

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

Mon, 07/18/2011 - 12:53 | Link to Comment 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 | Link to Comment f16hoser
f16hoser's picture

Should I stop paying them my monthly mortgage?

Mon, 07/18/2011 - 12:22 | Link to Comment Piranhanoia
Piranhanoia's picture

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

Mon, 07/18/2011 - 12:02 | Link to Comment 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 | Link to Comment buzzsaw99
buzzsaw99's picture

The bonuses will be huge again this year.

Mon, 07/18/2011 - 12:10 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

In nominal terms.  Real terms, not so much.

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

oops

Mon, 07/18/2011 - 12:13 | Link to Comment spekulatn
spekulatn's picture

Mr. Tony at macrostory.com shares some technicals on BAC.

"Gap yet to be filled at $3.73."

http://macrostory.com/?p=5288

 

Holy shi*!

Mon, 07/18/2011 - 12:14 | Link to Comment 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 | Link to Comment israhole
israhole's picture

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

Mon, 07/18/2011 - 13:13 | Link to Comment citta vritti
citta vritti's picture

would that any of them were in prison

Mon, 07/18/2011 - 12:15 | Link to Comment BlackholeDivestment
BlackholeDivestment's picture

Bank of America will no longer give out candy to the kids, instead, free Red Fez hats for everyone. http://www.youtube.com/watch?v=swBYeKXn6TE&feature=related

Mon, 07/18/2011 - 12:17 | Link to Comment lolmao500
lolmao500's picture

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

Mon, 07/18/2011 - 12:18 | Link to Comment 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 | Link to Comment oddjob
oddjob's picture

short toasters.

Mon, 07/18/2011 - 12:31 | Link to Comment 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 | Link to Comment JW n FL
JW n FL's picture

http://www.presstv.ir/detail/189559.html

 

Israeli navy attacks intl. monitoring vessel in Gaza

 

Sun Jul 17, 2011 11:56PM

**********************************************************

 

http://www.youtube.com/watch?v=fRZSzdQuOqM

 

http://www.ussliberty.org/
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!

 

http://www.rachelcorrie.org/ NEVER!! FORGET!!!

Mon, 07/18/2011 - 12:38 | Link to Comment israhole
israhole's picture

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

Mon, 07/18/2011 - 14:25 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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."

http://blogs.reuters.com/christopher-whalen/

 

Mon, 07/18/2011 - 12:55 | Link to Comment 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 | Link to Comment Jumbotron
Jumbotron's picture

As the Who sang....

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

 

Mon, 07/18/2011 - 14:15 | Link to Comment Riquin
Riquin's picture

Mon, 07/18/2011 - 14:20 | Link to Comment 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.

 

http://blog.sojo.net/2011/07/15/poverty-treasure-islands-and-global-tax-dodgers/

 

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.

 

http://www.npr.org/2010/12/14/132030011/wall-street-finds-lucrative-market-in-tax-liens

 

The Big Business Wall Street Won't Discuss

http://www.youtube.com/watch?v=-HRmSlP49mc

 

 

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Mon, 07/18/2011 - 14:44 | Link to Comment HungrySeagull
HungrySeagull's picture

It's interesting.

I am glad that one BAC check cleared.

 

Never again.

Mon, 07/18/2011 - 15:16 | Link to Comment 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 | Link to Comment 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 | Link to Comment WebWeasel
WebWeasel's picture

Murdoch AND BAC. I'm having a schadenfreudegasm.

What a great week to join Zero Hedge.

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