I don't know who's controlling the information these days, but the findings, or at least the alleged findings, of these government
stress tests has been handled about as sloppily as anything I can remember.
Every day it's a another bank in need of new capital or a new amount of it, whether it's Citigroup (Stock Quote: C), Bank of America (Stock Quote: BAC), Wells Fargo (Stock Quote: WFC) or someone else. Today we hear that BofA is being told by the government that it will need around $34 billion in excess funds in case the economy tanks even further.
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That led to a near panic, as investors feared that BofA was going to require a whole new set of monies. It's already gotten some $45 billion from Washington, you know, and now this. No real surprise what happened next. Shares of BofA sank in the premarket.
Hold on though. Once people took a step back, they realized the reports weren't saying BofA needed to raise fresh capital. The New York Times, the first to report the $34 billion figure late Tuesday, said in the third paragraph that the company "could satisfy regulators' demands simply by converting non-voting preferred shares it gave the government in return for the capital, into common stock."
In other words, BofA already has the money the examiners say it needs. It just needs a little accounting adjustment -- primarily to satisfy investors' recent obsession with tangible common equity, a conservative measure of how much capital a bank has to absorb loan losses. Citi and AIG (Stock Quote: AIG) made similar conversions earlier this year.
