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BofA, Citi shares slide as 'stress test' rumors heat up

April 28, 2009 | 10:16 am

Shares of Bank of America Corp. and Citigroup are trading lower today on a report that the government may want them to raise more capital -- the first sign of fallout from the just-completed "stress testing" of 19 big banks.

But the only surprise may be that anyone would be surprised that BofA and Citi would rank high on a list of banks that need more balance-sheet support.

From the Wall Street Journal:

Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government’s so-called stress tests of lenders, people familar with the situation said.

The capital shortfall amounts to billions of dollars at BofA, people familiar with the bank said.

Executives at both banks are objecting to the preliminary findings. The two banks are planning to respond with detailed rebuttals.

BofA shares were off 61 cents, or 6.8%, to $8.31 at about 10:15 a.m. PDT. They had traded as low as $8 at the opening bell.

Citigroup was off 15 cents, or 4.9%, to $2.92 after falling as low as $2.86.

Other bank stocks are mixed today. The BKX index of 24 major banks is off about 1.8% after losing 4.9% on Monday.

Investors aren’t worried about either BofA or Citi failing, because the government already has said that’s not a possibility. The issue is dilution: If BofA, Citi and other big banks are forced to raise more capital by selling new shares to the public or to the government, existing shareholders will have their stakes further diminished.

-- Tom Petruno