Bank of America (BAC) will need to improve its capital position by nearly $35 billion, according to several press reports. It may be able to sell its part of its stake in the China Construction Bank, which the FT says could bring in as much as $8 billion.

The bank could also negotiate with the federal government to get it to convert its preferred shares to common. That would cause uncommon dilution which would almost certainly drag down the price of the bank’s stock.

Ben Bernanke said that the large banks that need to raise money will be able to do so in the private capital markets. If he is wrong, Bank of America will be back to ask for more loans from the government, which might cost the firm its independence.

The Wall Street Journal suggests that B of A may hold a special place in the government’s heart because it bought Countrywide and Merrill Lynch at times when a public bailout of those companies could have caused the credit system angina. With Congress and watchdog agencies watching how the Treasury and Fed are using their thinning cash reserves, B of A will not be getting any sympathy or special dispensations from regulators.

That does not mean that the bank cannot play the Merrill card in the court of public opinion. B of A’s CEO Ken Lewis has already made the case the Henry Paulson virtually forced him to close the Merrill deal because it was in the best interests of the country’s troubled financial system. If that transaction is at the heart of B of A’s capital shortfall, the firm has a legitimate argument that because it helped the government when it was in a jam, it is time for the government to repay the favor.

Will complaining that government pressure to “save” Merrill and Countrywide get Bank of America more favorable terms than other firms that the government says need more cash? Probably not, but it is all B of A has left to make a case that its balance sheet issues are not entirely its fault.

Douglas A. McIntyre

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.