Bank of America Corporation is lagging behind its major US competitors in complying with new capital rules, leading the bank to consider even more asset sales, sources said.
The bank's management is focused on not being an outlier compared to its peers and believes it has "viable alternatives" to increase its capital levels, a person familiar with the situation told Reuters.
The bank, for example, could consider selling its Indian back-office processsing operation, as other banks have, sources said. The bank has also said it is looking to shed real estate holdings and private-equity investments.
But after about $50 billion (Dh183.63 billion) of asset sales since January 2010, which include sales such as most of its shares in China Construction Bank Corporation, the bank may not have many big-ticket items left.
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With one analyst saying the bank may need $45 billion of additional capital by 2019, it may have to start cutting deeper into its franchise. That would mean shedding more significant businesses, such as parts of the investment bank or the Merrill Lynch brokerage. The bank can also improve its capital measures by retaining profits and running off risky loans, but those steps will take time.
The bank declined to comment on specific asset sales.
The question of how much capital the second-biggest US bank will eventually need to raise is a key concern that is rattling investors. Bank of America, which had to be bailed out by the US government during the financial crisis of 2008, has remained one of the weakest in the industry.
For the last two years, Chief Executive Officer Brian Moynihan has worked to gradually streamline the company and build capital, but investors have been disappointed with the speed of a turnaround.
While the bank, like other financial firms, has suffered from a sluggish economy and concerns about the European debt crisis, it has also incurred self-inflicted wounds, including a now-cancelled plan to charge customers a $5-per-month debit card fee.
Bank of America's shares are down 58 per cent this year and closed below $5 on Monday for the first time since March 2009. In comparison, the KBW Bank Index is down 23.5 per cent this year. The bank's shares on Friday closed at $5.60, up 2.4 per cent amid a broader rally in the stock market.
Some analysts say the bank may have to take more dramatic steps, which could range from shaking up its management to breaking up the company.
"You have had nothing but bad news come out of the company for two years," said Charles Elson, director of the Weinberg Centre for Corporate Governance at the University of Delaware.
"At some point, the directors on the board have to say, ‘Is it systemic or the result of management?'"
Moynihan's team faces a slew of challenges in the coming year. Next month, the bank has to submit a capital plan to regulators that will lay out whether it aims to raise its dividend or buy back more stock.
The bank, along with four other large lenders, also has potentially damaging and expensive legal challenges. It is working to reach a settlement with state attorneys general and federal officials over a long-running investigation of foreclosure practices.
New capital rules
At an investor conference this month, Moynihan said the bank's capital levels are now at an all-time high and that asset sales and other actions in the fourth quarter of this year will further boost those measures. The company will continue to "drive high-quality capital growth" and to "shed non-core assets," he said.
Moynihan will be under pressure to show that Bank of America is up to the challenge of meeting proposed new capital rules and improving returns for shareholders.
Banks have until 2019 to fully meet international capital rules, with requirements stepping up between now and then. But most of the biggest US banks expect to meet the 2019 rules much sooner.
JPMorgan Chase & Co CEO Jamie Dimon has said his bank could meet 2019 requirements by the end of next year. Citigroup CEO Vikram Pandit has signalled his bank is heading towards that mark, and Wells Fargo & Co CEO John Stumpf has said his bank is "probably closer than any of the big banks to whatever that number needs to be".
Moynihan, meanwhile, has only said his bank will exceed the 2012 rules when they come into effect and meet the new standards within regulatory guidelines.
"They're pulling all the triggers they can, but it takes time to work through," Marty Mosby, an analyst with Guggenheim Partners, said of Bank of America.
Mosby estimates Bank of America might need up to $45 billion in capital to meet the 2019 rules, which could take the bank four years to accrue through earnings.
In a report last week, analysts at research firm CreditSights also said Bank of America was not likely to meet 2019 standards by the end of 2012. Regulators are still working to finalise the rules and how they will be implemented.