Bank of America's capital-raising prospects

May 6, 2009 | By Jim Kim

The news that Bank of America has been told by the Treasury that it needs to raise about $34 billion in order to withstand deteriorating economic conditions is not really a surprise. The issue now is whether the bank, which hotly disputed the stress test results, can raise the capital in a way that will not boost the government's stake in the bank to extraordinary levels.

By engaging in an exchange offer (preferred shares into common), it could satisfy regulators. But it wants to avoid turning the government into a massive shareholder--the fate of Citigroup--and will undoubtedly explore other options. It certainly has some assets it could sell. The most talked about is its Columbia asset management unit, which would fetch billions. It might also sell its stake in China Constructions Bank. But in the end, it's hard to see how the bank will be able to avoid an exchange offer to some degree. It has some time to ponder its options, but if it wants to sell assets, it will need to act quickly.

For more:
- here's some background from the New York Times