BofA Stock Rises, as Capital Concerns Dim

Nolte downplayed the significance of converting preferred shares into common stock, calling it "an accounting sleight of hand."

"You're moving it from one end of the balance sheet to another," he says.

Citigroup analysts, in an industry note published Wednesday, say that even with dilution, BofA shares remain attractive. The analysts say Bank of New York Mellon (BK), Goldman Sachs (GS) and State Street (STT) are also attractive plays based on valuation, because they will fare best on the stress tests.

"While [BofA] is likely to need substantial increase in common, we believe it can cover it via conversion of preferred stock leading to 30% dilution off a $4 core EPS base and stock looks the cheapest in the group," the analysts said in the note.

Regulators began notifying the 19 financial companies subjected to the government tests of the results Tuesday. An official announcement is expected after the stock market closes Thursday.

Reuters notes the amount is far higher than published reports had speculated the largest bank might need. The $34 billion figure more than triples previously published reports of Bank of America's capital needs.

The news is certain to increase the pressure on CEO Kenneth Lewis, who was ousted as chairman last week. He remains the company's president and CEO.

Most of the 19 U.S. banks undergoing the stress tests intend to hold press conferences on Friday to explain the test results, Reuters reports, citing a source, and added that many of the banks are in the process of putting together capital recovery plans.

The Financial Times reports Bank of America is considering the sale of an $8 billion stake in China Construction Bank within days in a move that would relieve some of the pressure on its balance sheet.

The bank is free to divest about a third of its 16.7% stake in China Construction Bank on Thursday following the expiration of a lock-in period.

The bank was weighing the merits of an immediate sale of the stake against holding on to the stake for a few weeks, the newspaper reports, citing people familiar with the matter. Bank of America said it "intends to remain a long-term shareholder and strategic shareholder with China Construction Bank," the Financial Times reports. Joseph Woelfel contributed to this report.

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