New Bank Capital Demands Will Drastically Reduce Bank Lending
BankAmerica’s chairman and CEO, Brian Moynihan, revealed today that every 1% additional capital requirement will reduce BAC’s ability to lend by $18 billion. Moynihan told Bloomberg television that the regulators’ new capital rules will mean $200 billion of loans we wouldn’t be able to make.”
This additional capital is meant to be a “buffer” in times of economic and financial stress, and “by definition you can’t leverage it,” Moynihan told Bloomberg from Russia where he was attending a conference.
BAC faces another major problem. Its shares– selling at $10.60 each– are valued in the market at 50% of book value. This low valuation suggests that Wall Street believes BAC faces a massive further write-down of its mortgage portfolio. And that portfolio, inherited from Countrywide Credit, may still face further loss of value should the price of residential homes continue to soften another 5% to 10%, as many feel could happen.
Many financial observers anticipate further write-offs by US banks as they have not been forced to mark their entire loan portfolios to market– but have kept them on the books at the original price or levels far higher than the current market.
Categories: North America, The Big Picture, Trends, Patterns, Indicators