Bank of America Set to Declare Bankruptcy

Bank of America Tumbles To Paulson’s Cost Basis Following Report Bank Will Need $50 Billion More In Capital Cushion

A few days ago when we demonstrated the most recent bond issuance by Bank of America in which thefirm issued $2.5 billion in new bonds, we said "BAC is largely underreserved for a settlement of this size which means its Tier 1 capital ratio will likely be impacted due to a major outflow of cash." Obviously the implication was that a capital raise is imminent. And while we were not exactly expecting the bank to access the equity capital markets (immediately), we knew cash would have to come from somewhere. Sure enough, Bank of America just issued $2.5 billion in 5 year bonds. So just when does the equity raise come? Two questions: is this funding simply to replenish the cash to have a decent Tier 1 ratio, or is the bank merely preparing for a waterfall of litigation now that the seal has been broken?" Well, the reason why the bank's stock just tumbled to fresh multi-year lows, and just on top of John Paulson's cost basis is a report from Bloomberg's Hugh Son which confirms our worst fears about the bank: "Bank of America Corp. (BAC) may have to build its capital cushion by $50 billion and renege again on Chief Executive Officer Brian T. Moynihan’s pledge to raise the firm’s dividend as mortgage losses drain funds." Next up, after investors balk to buy bonds from the firm at preferential rates, is Bank of America coming to market with another equity raise in full confirmation that the emperor is indeed naked... and Moynihan is about to be sacked.