Bank of America needs 34 billion USD to pass Fed's stress test

America's largest bank, Bank of America, is reported to require additional 33.9 billion USD to meet the capital target set by Federal Reserve during the stress test. The stress test also known as Supervisory Capital Assessment Program (SCAP) was conducted by Fed on 19 biggest financial institutions to find out the capital that will be required if the recession becomes deeper. The results of the test are expected to start coming from this week onwards. Speculation is rife that most of the banks will need additional capital to pass the test.

BofA had about 240 billion dollars of shareholder's equity capital as on 31st March 2009. This was about 10.3% of its total assets (2.3 trillion dollars). Since 2007 BofA has increased its shareholder's capital significantly to deal with the financial crisis and economic recession. However, if the macro-economic situation worsens in near term BofA would require still more capital as the results of SCAP of Fed would show.

According to a ews article by UK's 'The Guardian', BofA could sell a part of its stake in Chinese bank 'China Construction Bank' (CCB). The stake sale could fetch BofA about 8 billion USD. Even with this sale, BofA will have to garner the remaining 26 billion USD from other sources. In case of no other option left, it may have to convert some of the government's prefferred shares to common shares, thereby diluting the existing shareholder's stake.