Citigroup and Bank of America may need new capital


Each day there are more rumors about which of the 19 banks given government stress tests may have to raise more money. Last week it was regional banks in the Midwest and South that had extensive exposure to commercial real estate. Now the speculation has turned to Bank of America (BAC) and Citigroup (C), which each got extensive federal financial support last year.

One of the by-products of a larger investment in the two big money center banks is that the government could have to put in so much money or convert its preferred shares to common that it would end up owning a majority of the banks, just the way it may with GM (GM). That will mean extensive dilution for current shareholders.