Wednesday, May 6, 2009

More on B of A

I am still trying to figure out how B of A stock surged on the report they need $34 billion in equity capital, knowing this means at least 20% stock dilution if not 33%. I read a good blog on the reason for it based on gov't preferred shares being converted so shares had to be bought today to offset it, or something like that.


I found this article on business week which really says it all.

"BofA is poised to top the list of banks that need the most capital, at near $35 billion, because of its huge exposure to the consumer lending business, home mortgages, and credit cards, according to reports in The Wall Street Journal and elsewhere. The bank also has a portfolio of construction and commercial real estate loans that trumps those of JPMorgan Chase (JPM) and Citi. Still, despite the need for more capital, equity investors seemed to heave a sigh of relief on the eve of the announcement as the numbers appear below analysts' worst fears: New York bond shop CreditSights, for instance, had pegged the worst-case number for BofA at $39 billion. BofA's stock price closed up 17%, at 12.69. "

So Business Week claims the move up was due to the news being better than expected by $5B. Yeah, OK. Whatever.

Someday we will all look back at this and either laugh or say "what were we thinking?" Until then, BAC appears to be headed to its 200 day MA. I don't get it. Never will. I will stick with my pile of June puts and see where the chips fall.

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