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Bank Of America Finally Acknowledges Reality And Raises More Cash

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A few weeks ago, while its stock steadily tanked, Bank of America assured everyone that it had plenty of capital.

The market disagreed, and the stock continued to drop.

Then, finally, last week, after one last angry denial that took the form of a press release aimed at a journalist (me), Bank of America owned up to reality and took a $5 billion investment from Warren Buffett.

Yesterday, the company raised an additional $8 billion by selling half of its stake in China Construction bank.

So that's $13 billion of new capital in a week.

And that's a start. But it won't put to rest fears that the company needs a lot more.

The market is concerned about two main issues with Bank of America:

First, that the company's liability for mortgage-underwriting practices during the housing bubble will end up being considerably more than the $8.5 billion cash settlement the company recently agreed to. Yesterday, the FDIC announced its intention to object to this settlement, and some observers think that Bank of America could eventually end up paying a lot more.

Second, some analysts remain concerned that Bank of America still has a boatload of troubled assets on its balance sheet. Eventually, these analysts think, Bank of America will forced to acknowledge the "embedded losses" in these assets, which could inflict another hit on its capital levels.

Bottom line, Bank of America's recent moves are certainly encouraging--more encouraging than running the company into the ground while maintaining that everything is fine. It was the latter approach, after all, that led to the failure of companies like Bear Stearns and Lehman Brothers and huge taxpayer-funded bailouts for everyone from AIG to Citigroup to, well, Bank of America.

So, although Bank of America may have a long way to go in its workout process, at least taxpayers can rest assured that the company is finally acknowledging reality.