The most
recent leaks about Bank of America Corp.'s (NYSE:BAC) stress test results put the capital needs of the institution at $34 billion (give or take a billion, depending on sources). Either way, the figure is well north of the initial $10 billion rumor that
the bank denied having to raise only a couple of days ago. (
See Dealscape's stress test preview here.)
The stress test subjects expected to raise capital (currently rumored to be half of the 19 institutions) allegedly have been going back and forth with regulators over the past few days, making their case as to why they might not be as bad off as the tests indicate. But BofA has consistently been seen as the institution likely to need the most new money as estimates have ranged from no capital needed to as high as $100 billion. The $34 billion figure comes from an unnamed source that's evidently talking to all the major media outlets because
The Wall Street Journal,
The New York Times and the
Financial Times all had similar stories.
Such a high figure is sure to reinvigorate exasperated shareholders who had sought the removal of CEO Ken Lewis over the past few months. Although Lewis (and the rest of the board) were re-elected with a comfortable 70% of the stockholder vote, shareholders did see fit to strip Lewis of the chairman position by passing a resolution separating the CEO's and chairman's roles.
In addition to angry shareholders, Lewis may also have to defend his job from the Obama administration, as Treasury Secretary Tim Geithner has previously said that Treasury may demand the resignation of management where the institution needs extraordinary help. If BofA really is staring down the barrel of a $34 billion capital requirement, Lewis could very well be the first casualty. We may know as soon as Thursday when the Federal Reserve releases the stress test results. Then it is in the hands of each bank's management to explain how they plan to deal with their institution's requirements, and for Lewis it looks like there will be a lot of explaining to do. -
George White See Reuters story on stress testsSee Reuters story on BofA denying capital needs See Dealscape stress test preview
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You may pass the stress test but what about the fraud conviction. Mr. Ken Lewis CEO of Bank of America and possibly his board of directors need to be charged with wire fraud, bank fraud and securities fraud and sentenced according to standard guidelines under the criminal justice system. As the president CEO of Bank of America he had a fiduciary responsibility to report information to shareholders concerning contracts entered into that effected the value of the corporation. Instead he concealed relevant information that impacted the value of the company at the expense of the shareholders. I expect an indictment and trial just as we have seen with Bernie Ebbers and others that have committed similar crimes. My message to Mr. Lewis is simple, what goes around comes around buddy and maybe all you will need is a good book to read for many years. Maybe you will get lucky and they will sentence you to a prison in Colorado so you can at least be in the state where your mountain estate is and you can dream about it.