28 Apr 2009
April 28 (Bloomberg) -- Citigroup Inc. and Bank of America Corp. fell in German trading on concern the companies may be forced by regulators to raise more capital.Bank of America declined 6 percent to $8.36 and Citigroup dropped 7 percent to $2.86 after the Wall Street Journal said early results of the government's so-called stress tests show the companies may need additional capital. Executives from the companies are meeting with regulators to dispute the findings, the Journal reported, citing unidentified people with knowledge of the matter.
Citigroup and Bank of America have already received about a combined $90 billion in U.S. bailout funds after record losses from the collapse of the housing market. Bank of America Chief Executive Officer Kenneth D. Lewis is under growing pressure with shareholders scheduled to vote tomorrow on whether to replace him. Citigroup CEO Vikram S. Pandit's job also may be at risk if the New York-based firm has to seek more funds.
The possibility that some banks may fail the stress test is creating "a lot of anxiety in the market and confidence is so important for the sector," said Philippe Gijsels, a senior equity strategist at Fortis Global Markets in Brussels, in a Bloomberg Television interview.
Richard Tesvich, a spokesman for Citigroup in Hong Kong, declined to comment, as did Bank of America spokeswoman Elizabeth Wood in London.
Stress Tests
Results of the stress tests are scheduled to be made public as soon as May 4. The examinations were conducted by regulators to determine which of the 19 largest U.S. banks require more capital to help weather adverse economic conditions. Analysts at Morgan Stanley have said SunTrust Banks Inc., KeyCorp and Regions Financial Corp. are "most likely" to need funds.
Citigroup's board survived a shareholder vote at last week's annual meeting, even after the company's stock plummeted 89 percent in the past year.
The Treasury Department may become Citigroup's biggest shareholder as soon as next month when the bank converts as much as $52 billion of preferred stock into common shares. The government may ask for the resignations of board members to show they're accountable for net losses that totaled $27.7 billion last year, according to investors, including Peter Sorrentino of Cincinnati-based Huntington Asset Advisors and William Smith, founder of Smith Asset Management Inc. in New York.
Treasury Secretary Timothy Geithner said April 5 that he's prepared to remove executives and directors at banks that require "exceptional" assistance.
Lewis's Future
Citigroup, the third-biggest U.S. bank by assets, will be "ranked as one of the lowest" in the stress tests, according to analysis released earlier this month by Christopher Whalen, a managing director at bank-research firm Institutional Risk Analytics in Torrance, California.
The company had a first-quarter profit of $1.6 billion, helped by trading gains and an accounting benefit for distressed companies. Since then, the stock has dropped 23 percent in New York Stock Exchange composite trading on analysts' estimates of future losses as mortgage and credit-card delinquencies increase.
Bank of America, based in Charlotte, North Carolina, also is the target of shareholder ire. RiskMetrics Group Inc.'s ISS Governance Services recommended earlier this month that investors vote against Bank of America's Lewis, lead director Temple Sloan Jr. and four other board members seeking re- election. The board "failed to provide adequate oversight of management," according to RiskMetrics.
