Oppenheimer: Bank of America Needs to Raise $36.6 bln in Capital

Bank of America (BAC) needs to raise $36.6 billion in equity to be in line with peers, according to Oppenheimer & Co.

In a report to clients today (Wednesday) Analyst Chris Kotowski said that with investors reluctant to commit new funds to lenders, BofA is more likely to raise capital by converting preferred stock to common, or issuing 5.2 billion shares through the Treasury’s Capital Assistance Plan.

“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.

Kotowski’s statement categorically contradicts BofA’s CEO, Ken Lewis, numerous claims that the bank has turned the corner and that it will rebound from a 4Q loss without more government assistance.

Doubling BofA’s ratio of tangible equity capital as a percentage of risk-weighted assets to about 6 percent would put the company in line with the 6.3 percent average of the 25 largest U.S. banks, Kotowski said.

Oppenheimer cut quarterly earnings estimates for Bank of America to 2 cents/share from 10 cents because of expected higher losses on credit cards and other loans. [via Bloomberg]

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