Bank of America Can Meet Stress Test Needs: Lewis
Bank of Americawill be able to raise the capital required to meet government stress tests levels within a few months, company CEO Ken Lewis said Friday.
Using a combination of selling common equity shares and selling assets, the company can close the $33.9 billion gap the government is requiring so that BofA has enough capital on hand to cover its liabilities, Lewis said during a live interview on CNBC.
The embattled CEO dismissed the question of whether the stress test number is fair and instead said the bank will do what the process mandates and could meet the capital requirement in three months or so.
"We think it's pretty aggressive, but I don't think it matters whether it's fair or not," Lewis said. "We're going to do it and we think we've got a clear path to do it."
Of the total gap that needs to be closed, BofA will raise about $17 billion in common equity and another $10 billion through asset sales. Those assets could include the Columbia Management investment division as well as First Republican Bank of San Francisco, he said. Some accounting adjustments also will help.
Lewis said the stress test process is the most recent episode that makes it clear the face of banking in the United States will be permanently changed following the subprime mortgage collapse that led to the majority of the bank problems.
"It's going to be a much simpler world," he said. "It's going to be a more conservative world and there's going to be a lot less leverage. That applies to business, to banks and to consumers."
In a wide-ranging interview, Lewis said the worst seems to have passed for the economy and the banking industry.
Contrary to market fears, he said banks are beginning to lend again, and sees the day coming when the Federal Reserve will have to change its aggressive rate-cutting policy and start tightening as inflation becomes a threat.
And as far as his own job security goes, Lewis said he understood shareholder concerns but did not provide a specific timetable for when he will step down--other than to say it will be sometime between the three months or so when the stress test needs are met and the three years until he reaches 65, the traditional age for BofA CEOs to step down.
"The easy way out would just be to walk out now and let somebody else have this problem, but I owe it to my teammates to see us through this," Lewis said.
Similarly, Lewis rejected calls to break up BofA that were predicated on the notion that its business has become too far-flung. Shareholders sharply criticized Lewis for acquisition of Merrill Lynch last year, but Lewis said the move has been a plus for the company.
"I think the breakup calls are absurd," he said. "We think diversity of revenue, the ability to get scale and drive down costs, the ability to integrate your businesses and the ability to provide a broad range of products and solutions for your clients, is the way to go," he said. "Yes, we've gone through a difficult time because of the economy, but we will prove and others will prove this can be a very successful way to run a company."
In addition to lending, BofA also has been able to sell off some of the troubled assets that had been choking its balance sheets.
Though he didn't disclose what type of price the company has gotten, he said it has either broken even or made money on the sales. "The ice is beginning to thaw, so it seems," he said.
Lewis said the business climate ought to show significant improvement in the second quarter.
"We think that we're getting fairly close to the bottom and then we'll start seeing some increases," he said. "We think the things that have been done relative to the tax cuts and the impact of these refinancings will have a pretty big impact on the economy at some point."