Bank of America Corp., the lender that will pay a record fine to settle probes into mortgage bond sales, issued $4.5 billion of debt in three parts.
The second-largest U.S. lender sold $3 billion of 4.2 percent, 10-year, subordinated notes to yield 180 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. It also issued $1 billion of 1.7 percent, three-year, senior unsecured securities to yield 80 basis points more than Treasuries, Bloomberg data show.
The bonds were sold after the Justice Department announced Bank of America will pay an approximately $16.7 billion settlement tied to the loans that fueled the financial crisis. It’s the harshest penalty yet related to those faulty mortgage practices, the Department said.
With the settlement announced today after months of speculation, it was a good time for Bank of America to issue debt, said Kathleen Shanley, a bond analyst at Gimme Credit LLC.
“After an event like this, the uncertainty is out of the picture,” she said. “It’s a good time to tap the market.”
The average spread on bonds that financial institutions use to help satisfy regulatory capital requirements fell to 233 basis points yesterday from 372 basis points 11 months ago, according to the Bank of America Merrill Lynch U.S. Capital Securities Index.
Bank of America’s $500 million of floating-rate bonds were sold at a spread of 61 basis points more than the three-month London interbank offered rate. A basis point is 0.01 percentage point.
The mortgages settlement will reduce third-quarter pretax profit by about $5.3 billion, the Charlotte, North Carolina-based bank said in a statement today.