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Bank of America's Freedom: At What Cost?

Bank of America investors are fretting about how much capital it must raise to pay back the $45 billion it owes the U.S. Treasury, but estimates vary widely.
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NEW YORK (

TheStreet

) --

Bank of America

(BAC) - Get Bank of America Corp Report

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) - Get JPMorgan Chase & Co. Report

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.

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Still, even if you include that extra $5.75 billion in assessing JPMorgan's capital position, it would mean BofA would need to raise $6.7 billion at the very most in order to exit TARP, Wilson says.

"I doubt very much that Mr. Bove is correct that regulators want BofA to raise $45 billion in new capital above the $40 billion already raised after the stress test. There seems to be no basis for his analysis that seemingly spooked BofA investors on Monday," Wilson wrote in an email to

TheStreet.com

. Bove did not return a call placed to him late Tuesday.

Of course, just because a bank exits TARP doesn't mean it has enough capital to make regulators happy in the future. Monday's selloff appeared to be provoked by a view that regulators would require all big banks to beef up their capital ratios, whether they remain under the TARP, like BofA,

Citigroup

(C) - Get Citigroup Inc. Report

and

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

, or have paid it back, like JPMorgan,

US Bancorp

(USB) - Get U.S. Bancorp Report

,

BB&T

(BBT) - Get BB&T Corporation Report

and

Bank of New York

(BK) - Get Bank of New York Mellon Corporation Report

.

--

Written by Dan Freed in New York

.