May 20 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, raised about $13.5 billion by selling stock after U.S. regulators determined it needed more cash to weather an extended recession.

Bank of America issued 1.25 billion shares at an average price of $10.77 each, according to a statement yesterday. The Charlotte, North Carolina-based company plans to boost common equity capital by $17 billion through the sale of stock and by converting preferred shares mostly held by institutional investors, Chief Executive Officer Kenneth Lewis said May 7.

Lewis, told by U.S. regulators earlier this month that he needs to raise $33.9 billion, took advantage of a 40 percent increase in Bank of America’s market value during the past month to bolster capital. Wells Fargo & Co. and Morgan Stanley were the first banks to respond to the government’s stress tests when they sold a combined $16.6 billion of stock and bonds on May 8.

“You have to do it while things have improved and you’re really running the gauntlet if you don’t,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne.

Bank of America advanced 24 cents, or 2.1 percent, to $11.49 at 4:05 p.m. in New York Stock Exchange composite trading. It has more than tripled since falling to a 25-year low on March 6.

The bank has said it expects to add another $10 billion of capital through asset sales and at least $7 billion from an improvement in pretax profits. The figures may change as the company considers options to achieve its $33.9 billion target, spokesman Jerry Dubrowski said in a phone interview.

‘No Set Formula’

“There is no set formula in how much of each category we need to accomplish,” Dubrowski said. “We have a target and we’ve talked about a number of different ways to get there.”

Bank of America may post a $4 billion after-tax gain from last week’s sale of 13.5 billion China Construction Bank Corp. shares, according to a May 17 estimate from Citigroup Inc. analyst Keith Horowitz. The company is considering a sale of its Columbia Funds asset management group and First Republic Bank, the private bank acquired in the takeover of Merrill Lynch & Co.

Bank of America faces potential losses of $136.6 billion, equal to 10 percent of loans, for 2009 and 2010 under the Federal Reserve’s adverse scenario for the U.S. economy. The stress tests project an economic scenario much gloomier than most analysts predict, Lewis said on a May 7 conference call.

Earnings Estimates

“The tests showed by-and-large that our banks are strong, well-capitalized and prepared to face even a more dire economic scenario than any of us expect,” Lewis said in a speech today in London. Bank of America “will be the winner when the economy recovers in the coming years.”

Analysts at Goldman Sachs Group Inc. raised their investment rating on Bank of America this week to “buy” from “neutral,” saying the company may earn 25 cents a share in the second quarter. The average estimate of 20 analysts surveyed by Bloomberg is for a profit of 4.8 cents.

“The worst is over for Bank of America and it will have absolutely no problem raising more capital,” said Kim Yong Tae, head of overseas investment at Yurie Asset Management Inc. in Seoul, which runs $2 billion. “The minute the U.S. government started pumping taxpayer money into lenders its financial-system risks started easing, and are now completely gone.”

Bank of America’s $3 billion of 7.375 percent notes due in 2014 jumped 1.8 cents to 104.3 cents on the dollar at 3:27 p.m. in New York, narrowing the gap between the yield and similar- maturing Treasuries by 27 basis points, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 6.28 percent.

Bank of America sold the securities on May 8 in its first corporate debt offering not guaranteed by the Federal Deposit Insurance Corp. since the company raised $2.9 billion in May 2008, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

Last Updated: May 20, 2009 16:46 EDT