There's more bad news in what is turning into the worst week ever for Bank of America Corp.'s (NYSE:BAC) Ken Lewis. Leaked results of the stress test say that BofA (BAC) and Citigroup Inc. (NYSE:C) will need to raise billions in new capital to ride out the recession.
According to The Wall Street Journal, "the capital shortfall amounts to billions of dollars at Bank of America, based in Charlotte, N.C., people familiar with the bank said."
The story sent shares of both banks tumbling in premarket trading, damaging the prospects of either bank enticing investors to pony up billions in new capital.
The leak couldn't have come at a worse time for Lewis. With a growing number of shareholders calling for his ouster, the news of a potential capital shortfall is sure to be a major topic at the bank's annual meeting Wednesday. Lewis will not only have to reassure shareholders he's the best man to guide the institution through these troubled times, but will also have to fight off charges that he was aware of the troubles at Merrill Lynch & Co. prior to the merger. Merrill's former CEO John Thain blasted BofA's management Monday, accusing them of making him the fall guy when shareholder anger erupted over $16 billion in fourth-quarter losses at the investment bank that weren't revealed until after the stockholder vote on the deal.
For his part, Lewis has maintained that BofA will not need to raise any more capital and has been touting the lift that Merrill recently provided to the bank's first-quarter earnings, a defense likely to continue as he fights for his job Wednesday. But surviving the annual meeting may not be the last hurdle for BofA's top brass. Treasury Secretary Tim Geithner has said that the administration may replace executives and directors at banks that require "exceptional" assistance, a comment that may apply to Citi and BofA if they return hat in hand after already receiving $90 billion in bailout money between them.
- George White
