BofA and Citi in last push on stress tests By Francesco Guerrera in New York
Published: May 3 2009 22:36 | Last updated: May 3 2009 22:36
Citigroup and Bank of America are working on plans to raise more than $10bn each in fresh capital, even as they launch last-ditch attempts to convince the US government they do not need to bolster their balance sheets.
People close to the situation said Citi, BofA and at least two other lenders will on Monday attempt to convince the Treasury and the Federal Reserve that the findings of “stress tests” into their financial health were too pessimistic.
But with time running out – the government will present the final test results to 19 banks tomorrow with an announcement scheduled for Thursday – both Citi and BofA are looking at how they could raise extra capital.
Preliminary findings have revealed that Citi, which has already been bailed out three times by the authorities, could need an extra $10bn or more if the economy worsens. BofA, which has had $45bn in government aid, was found to need well in excess of $10bn, people familiar with the matter said.
Regional lenders Wells Fargo and PNC Financial were also among the banks that would need to raise more capital unless they could persuade the authorities their findings were wrong, said people close to the situation.
Citi is believed to be considering a plan to convert more than $15bn in trust preferred shares – a hybrid of debt and equity – into common stock.
Since trust preferred shares are held by non-government investors, this conversion could enable the authorities to inject further funds into the bank without raising its stake beyond the 36 per cent it has already agreed to buy. People close to Citi say it would have to force holders of trust preferred shares to convert them into common stock, which ranks below those securities and does not pay a yearly interest rate, by threatening to stop paying interest if they reject the offer.
The banks and the government declined to comment.
Copyright The Financial Times Limited 2009
