Felix Salmon writes:

When the government announced its stress tests on February 23, Bank of America stock closed at $3.91 a share. At that level, if the government converted $34 billion of preferred stock into common equity, it would have received 8.7 billion shares in Bank of America. There are 6.4 billion shares outstanding right now, which means the government would have ended up with a controlling 58% stake in the company.

Today, BAC is trading at $14.64 per share. At that level, the conversion of $34 billion of preferred stock would mean the creation of 2.3 billion new shares, which would give the government ownership of “only” 27% of the company — a large stake, but very much a minority stake.

It seems like Bank of America should engage in some short-term blustering and rumor-starting to hype its stock price and then beg Treasury to announce a conversion before the market has a chance to respond, no? In theory, of course, you'd say that Treasury doesn't want to buy high. But my sense is that Treasury would actually quite like to buy high. A dollar of recapitalization is a dollar of recapitalization. And they'd prefer the next morning's news stories not include the words "majority shareholder." There's a tradeoff there, of course, but thus far, Geithner has seemed more concerned with minimizing the government's intrusiveness in the financial sector than maximizing the potential for taxpayer profit.