Bank of America Doing Worse Than Citi?

Includes: BAC, BAC.B, BAC.PL, C
by: Ryan Avent

Folks seem surprised at the $34 billion in needed new capital number that’s circulating today. I realize that the last leak said they’d only need $10 billion, but the leak before that put the need at closer to $35 billion if I recall correctly. I know it’s difficult to keep track of the leaks these days.

Economics of Contempt says something intriguing:

This isn’t too terribly surprising. I think one of the biggest takeaways from the stress test results will be that BofA is in a lot worse shape than any other major U.S. bank, Citi included.

I had been under the impression that Citigroup (NYSE:C) was in much worse shape that everyone else, and that had they not already committed to converting preferred shares to common equity their capital needs would be at least as substantial as Bank of America’s. I had also assumed that if any bank were to wind up in government receivership, it would be Citi. This raises an interesting question; when IndyMac (IMB) was nationalized, officials were surprised at how many depositors bolted — an occurrence which significantly increased the cost of taking over and cleaning up the bank. B of A is simply an enormous commercial bank. Even if the government spent weeks explaining to the public how a takeover would work and indicated repeatedly that deposits would be guaranteed, would a significant share of depositors bolt?

On the one hand, it’s a pain to switch banks. On the other, no one likes there to be uncertainty surrounding their savings. Even just regarding matters of convenience — will it be harder to get new checks? to transfer money out of a CD? will branches close? — I can see how folks would just conclude that they’d rather not deal with the hassles, real or imagined.