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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Ancona's picture

Whoa Nellie!

Looks like BAC is terminally fooked.

Cognitive Dissonance's picture

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

SheepDog-One's picture

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

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.

camaro68ss's picture

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

francis_sawyer's picture


Long tongue depressors!

Cognitive Dissonance's picture

That hurt my brain just from reading it.

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!

SheepDog-One's picture

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

SilverDoctors's picture

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

williambanzai7's picture

Give or take $20 billion.

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

HungrySeagull's picture

20 Bil is still alot of money.

To those of us who have none.

WALLST8MY8BALL's picture

yeah The Trashury just replaced all the ink cartridges!

Cognitive Dissonance's picture

Time to find a rich Saudi Prince to rescue BAC.

hedgeless_horseman's picture


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

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!

oogs66's picture

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

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.

redpill's picture

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

Precious's picture

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

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.

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.


A Man without Qualities's picture

resolution authority, bitchez....

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". 

francis_sawyer's picture

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

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...

lolmao500's picture

Time to buy some US treasury short ETFs...

Larry Darrell's picture

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

SilverDoctors's picture

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

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...

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...

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.

High Plains Drifter's picture

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

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.

f16hoser's picture

Should I stop paying them my monthly mortgage?

Piranhanoia's picture

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

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.

buzzsaw99's picture

The bonuses will be huge again this year.

hedgeless_horseman's picture

In nominal terms.  Real terms, not so much.

spekulatn's picture

Mr. Tony at shares some technicals on BAC.

"Gap yet to be filled at $3.73."


Holy shi*!

Cruel Aid's picture

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

Probably insignificant compared to the Countrywide.

israhole's picture

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

citta vritti's picture

would that any of them were in prison

BlackholeDivestment's picture

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