Regulators have told Bank of America Corp it needs $34 billion of capital to withstand a deep economic downturn, an industry source familiar with results of a government stress test said late on Tuesday.
Citigroup Inc may need as much as $10 billion, a person familiar with the matter said this week. About 10 of the 19 big U.S. banks being stress-tested may need more capital, a person familiar with the official talks has said.
The sources were not authorized to speak because the stress test results have not yet been made public. Results are due late Thursday.
Early results of the tests may unnerve investors who had hoped they might show the industry was in less dire condition than feared.
Bank of America's test results are also certain to increase pressure on Chief Executive Kenneth Lewis, who was ousted as chairman last week in a shareholder vote. That ouster could also lay the groundwork for his departure from the company he has served for 40 years, including the last eight as CEO.
In morning trading, Bank of America shares rose 36 cents to $11.20, while Citigroup rose 14 cents to $3.45. Standard & Poor's 500 index futures rose 0.8 percent. Stocks rebounded from earlier losses after a report suggested the U.S. economy lost fewer private-sector jobs than expected in April.
Analysts believe other banks that may need capital include Wells Fargo & Co, Fifth Third Bancorp, GMAC LLC, KeyCorp, PNC Financial Services Group Inc Regions Financial Corp and SunTrust Banks Inc.
BANK OF AMERICA SURPRISE
The government has spent three months conducting stress tests on the 19 largest U.S. banks to determine their capital needs should economic conditions worsen more than many economists now expect.
It is unclear how Bank of America might raise capital, whether by selling assets, issuing more common stock or other steps. The largest U.S. bank has already received $45 billion of government help.
Bank of America spokesman Scott Silvestri, the Federal Reserve and the U.S. Treasury Department declined to comment.
Citigroup analyst Keith Horowitz raised his price target for the bank's shares to $14 from $10, though he believes Bank of America will need a substantial increase in common stock.
Bank of America is struggling with its controversial January 1 takeover of Merrill Lynch & Co as well as heavy credit losses.
Lewis told analysts on an April 20 conference call that we absolutely don't think we need additional capital, but added: Make no doubt about it, credit is bad, and we believe credit is going to get worse.
Through Tuesday, shares of Bank of America had fallen 68 percent since the Merrill purchase was announced September 15.
Bank of America could raise capital by selling some or all of its 16.6 percent stake in China Construction Bank Corp, that country's second-largest bank.
It may sell 13.5 billion CCB shares, a 6 percent stake worth $8.3 billion, when a lock-up period ends on Thursday. Bank of America has also said it may sell its First Republic Bank business.
If Bank of America cannot sell enough assets, it might be forced to convert some of its preferred shares held by the government into common stock, leaving the government as one of its biggest shareholders.
Fed Chairman Ben Bernanke on Tuesday said most banks needing capital can raise it through either issuance of new capital or through conversions and exchanges, or the sales of assets and other measures.
Critics fault Lewis for failing in December to back away from the Merrill merger or disclose Merrill's sinking finances. Merrill later posted a $15.84 billion fourth-quarter loss.
U.S. regulators are examining the Bank of America disclosures, as well as $3.6 billion of bonuses that Merrill paid out.
Lewis has said in testimony that he felt pressure from Bernanke and former U.S. Treasury Secretary Henry Paulson to close the merger, so as to not upset the financial system. Law professors and governance experts say Lewis owed a fiduciary duty to his shareholders first, not to regulators.
Bernanke on Tuesday told lawmakers he did not pressure Lewis to withhold information from shareholders about Merrill.
(Reporting by Karey Wutkowski and Jonathan Stempel; Additional reporting by Dan Wilchins in New York; Mark Felsenthal and David Lawder in Washington, D.C.; Douwe Miedima in London; and Michael Flaherty and Parvathy Ullatil in Hong Kong; Editing by David Holmes and John Wallace)