Bank of America Corp. will redeem $5.1 billion in trust-preferred securities, its biggest single such transaction in a campaign to trim pricey forms of debt, in a move that shaves $350 million in interest costs through 2013.
The redemptions, scheduled for next month, will prompt a $100 million pretax charge in the fourth quarter, the Charlotte, North Carolina-based company said today in a statement. The securities paid rates as high as 7.8 percent, according to the statement.
Chief Executive Officer Brian T. Moynihan, 52, is reducing his firm’s long-term debt while raising capital to meet demands from regulators for a larger cushion against losses. Trust-preferred securities, which have characteristics of both equity and debt, won’t count as Tier 1 common equity under coming rules set by the Basel Committee on Banking Supervision.
The lender retired $5.5 billion of debt and trust-preferred securities in the second quarter and $4.9 billion in debt and trust securities in the first quarter, according to earnings statements.
Moynihan has said he is leaning more on federally insured deposits to reduce interest costs. Bank of America pays about $500 million a quarter in interest for its $1 trillion of deposits compared with about $2.5 billion for $300 billion of long-term debt, Moynihan said on a July 18 investor call.