U.S. Treasury To Start Injecting Capital Directly Into Banks Within Weeks

Various reports suggest the U.S. Treasury will begin injecting capital directly into U.S. banks within weeks, in return for common or preferred shares. The Treasury's share positions will be passive, with no intention to join the boards.

This is a change from the original strategy to use the $700 billion strictly for buying troubled mortgages on the book of banks. The Treasury still plans to buy the assets, but injecting capital directing into the banks could be a more immediate approach.

Plans on how the capital injections will work are still being considered.

A capital raise earlier in the week from one of the nation's strongest banks, Bank of America (NYSE: BAC), showed just how hard it has gotten for banks to raise capital. BofA had to reduce its offering price significantly to raise the $10 billion. BofA finally priced its 455 million share offering at $22 per share, which was a drastic cut from the $32 level the stock was at before the announcement. The Treasury figures if BofA is having a tough time raising capital, it may be near impossible for smaller, weaker banks to sell stock in this market.

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