Banks begin to plug gaps

NEW YORK - Bank of America, the United States financial giant whose purchase of Merrill Lynch last year took it to the brink of collapse, said it had all but raised the US$34 billion ($52 billion) in extra capital that the federal Government had demanded.

The bank said that a slew of investors had agreed to swap preferred stock in the company for new common shares, in effect plugging the hole in the balance sheet identified by the government "stress test" of the bank.

And Morgan Stanley said it had been able to raise a further US$2.2 billion to shore up its finances.

Morgan Stanley, which raised $8 billion in stock and debt last month, joins the list of banks saying that they plan to pay back money from the taxpayer, which was doled out under the Troubled Asset Relief Programme (Tarp) to try to prevent a collapse in confidence in the financial system.

Yesterday, JPMorgan Chase and American Express had both raised new funds to help convince regulators that it is safe for them to pay back the government money.

BofA, which has taken US$45 billion in taxpayer funds, is not fit enough to join the first banks paying back Tarp funds, but said that it would be able "to reduce reliance on government support for the company".

Last month it was told to raise US$33.9 billion in new capital, the largest shortfall of any bank which underwent the government's stress test.

Since then it has raised US$13.5 billion from the sale of new shares and also sold its stake in China Construction Bank.

It said that it had persuaded the holders of US$9.5 billion of BofA's preferred stock to swap holdings for common shares which takes its told new capital to US$33 billion. Joe Price, chief financial officer, said the bank would comfortably exceed the Government's stress test target.

- INDEPENDENT