The Great Deleveraging Continues

Bank of America felt compelled to raise $13.5 billion in a common stock sale yesterday. The U.S.’ biggest bank (by assets) diluted stock owners to the tune of 1.25 billion new shares.

Under the most adverse scenario in the government’s “stress test,” Bank of America faces potential losses of another $136.6 billion over the next two years. So if you wanted fresh BoA shares yesterday (why?) but couldn’t get a hold of any… we suspect there will be another offering in the not-too-distant future.

Bank of America felt compelled to raise $13.5 billion in a common stock sale yesterday. The U.S.’ biggest bank (by assets) diluted stock owners to the tune of 1.25 billion new shares.

Under the most adverse scenario in the government’s “stress test,” Bank of America faces potential losses of another $136.6 billion over the next two years. So if you wanted fresh BoA shares yesterday (why?) but couldn’t get a hold of any… we suspect there will be another offering in the not-too-distant future.

“The financial crisis is not over yet,” Chris Mayer assures us. “The banks still need capital. And more credit losses are on the way — from commercial real estate to credit cards and everything in between. The great deleveraging is still under way, and that’s one reason — among many — that gold should do well.

“The ripple effects of the financial crisis have been felt in all sectors, though. In the world of oil and gas, we see lots of production cutbacks and projects shuttered or delayed. Getting financing is tough. About the only people spending money are the Chinese.

“In general, I think we are in an age in which political risk is high. Increasingly, we’ll have to take into account what governments are doing. Most of them are broke. Most of them seem intent on bailing out banks and other failing businesses in favored industries. So that would mean the printing presses will run amok. That’s good for gold and commodities generally, which ought to preserve their purchasing power as paper currencies lose theirs.”