Bank of America's Freedom: At What Cost?

NEW YORK (TheStreet) -- Bank of America (BAC) watchers freaked out Monday on concerns the bank will have to raise additional capital before federal regulators allow it to pay back the $45 billion it owes the U.S. Treasury, but estimates vary widely on how much it will take to make regulators happy.

Rochdale Securities analyst Richard Bove thinks regulators want BofA to raise $45 billion more before they allow the company to pay back their investment made under the Troubled Asset Relief Program, according to a report he published late Friday. But Linus Wilson, a finance professor at the University of Louisiana and avid TARP follower (and critic), thinks the number is much smaller.

BofA: Better Capitalized Than You Thought?

Dr. Linus Wilson

Wilson notes Bank of America is almost as well capitalized as JPMorgan Chase (JPM) is today, and one could argue it is better capitalized than JPMorgan was when it got approval to pay back the government's TARP investment (see table). Wilson notes BofA had a tier 1 common equity ratio of 7.3% at the end of the third quarter, and while JPMorgan had a 7.7% ratio, which included $5.75 billion in equity JPMorgan was forced to raise by the Federal Reserve as a final condition for its exit. (Tier 1 common is the metric the Federal Reserve used for its stress test in May.)

However, Wilson is not sure if it should be included, since the stated purpose was not for JPMorgan to strengthen its capital position but instead to show it could access the capital markets. Without it, JPMorgan's Tier 1 common equity ratio would have been 7.2%, lower than where Bank of America stood at the end of the third quarter.