The bank probably needs to maintain a tangible equity ratio of 6% to 9%, he said. “It would take over $80 billion of new common equity to reach even the low end of the range, and we believe Bank of America simply is not generating sufficient capital internally in this environment to put a dent in this size capital hole.”
This is on top of all the other money already given to the Bank of America. And this is only the tip of the iceberg. Bank after bank has been posting horrendous losses. As this Calculated Risk post shows, bank stocks are getting killed. And they were already worth almost nothing. Wall Street is waking up to the fact that the banking system is insolvent and there is panic on the street.
What is really scaring people is that prime mortgage defaults have started to shoot up just when banks had thought they had worked through their sub prime losses. As more and more people lose their jobs it is only going to get worse. And if prime defaults are going up, the Agencies are really going to start needing cash. People are just beginning to see how much this is going to cost.
Edit: I forgot to add in this from the New York Times….
Stock markets had one of their worst Inauguration Day losses in more than a century, skidding more than 4 percent. Financial companies plunged more than 15 percent, their biggest one-day drop in nearly two decades, as investors worried that the troubles facing the country’s biggest banks might be larger and deeper than anyone had thought.
Even after record corporate write-downs and a $700 billion bailout to shore up the financial system, banks are still reporting huge losses, lining up for new government lifelines and cutting their profit outlooks.
The stock market drooped so much that the Dow is now below 8,000 if anyone cares about such meaningless number anymore.
From later on in the same New York Times article comes the money quote….
“At the end of the year, we saw some light at the end of the tunnel,” said Art Hogan, chief market strategist at Jefferies & Company. “Unfortunately, we found out that the light at the end of the tunnel was a train.”