Citigroup (C) And Bank Of America (BAC) Capital Needs Could Damage Stock Prices

Banking, finance, and taxes

Published: May 4, 2009 6:18 am

Last Updated: April 27, 2020 7:06 pm

The Financial Times is reporting that Citigroup (C) and Bank of America (BAC) may each need to raise over $10 billion. If that is true, to get money in the capital markets and not from the government, they are going to have to offer shares at well below market.

Citigroup’s share price could be cut in half under those circumstances.

Citi’s current market capitalization is only $17 billion. Its share price is $3, so it it has to offer stock at $2.50 to bring in the capital and avoid having the government own the majority of the bank, existing shareholders could see the value of their holdings cut in half.

At Bank of America which has a market cap over over $50 billion, the situation would not be so bad, but stockholders could certainly face a 20% dilution of the bank raises money from private equity interests.

Douglas A. McIntyre

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