“It is perhaps unusual to model highly dilutive equity raises into earnings forecasts, but we believe that in the current environment, until credit quality stabilizes and capital requirements are more precisely known, it is the prudent thing to do,” Kotowski wrote.This action would allow the company to double its low tangible equity capital as percentage of risk-weighted assets ratio to 6%, which would fall in line with the 6.3% ratio of its peers. It is unclear how this action would jive with Lewis' reassurance that the bank will not need to raise any more capital in the future, nor how BofA shareholders would respond to this dilution. Of course, it also means that as hedge funds pile into a Citi comparable common-preferred arbitrage strategy at BofA, we will see more potential mega squeezes in the future. Sphere: Related Content Print this post
Wednesday, April 8, 2009
Posted by Tyler Durden at 12:26 PM
A research piece from Oppenheimer states that BofA needs to raise over $36 billion in equity to be in line with peers. Analyst Chris Kotowski says that due to inability to access the equity capital markets, BofA will be forced to follow in Citi's footsteps and convert preferred shares to common stock. Despite Ken Lewis' numerous claims that the bank has turned the corner, especially with the uber strong January and February performance, more dilution and taxpayer subsidies may be just a matter of time.