Bank of America Stock Sale Biggest Since 2001by and
Bank of America Corp. (BAC), the largest U.S. lender, raised $19.3 billion selling securities at $15 apiece in the biggest sale of stock or preferred shares by a U.S. public company since at least 2000.
The bank, which plans to repay $45 billion of U.S. rescue funds, sold 1.286 billion so-called common equivalent securities, according to Bloomberg data. The security is made up of one depositary share and one warrant and is convertible into one common share, subject to stockholder approval, according to a regulatory filing by the Charlotte, North Carolina-based bank.
Bank of America plans to use the proceeds to free itself from government restrictions after accepting funds from the Troubled Asset Relief Program. Banks, brokerages and insurers have raised $1.5 trillion to shore up capital after the biggest financial crisis since the Great Depression spurred more than $1.7 trillion in writedowns and credit losses globally.
"We bought it in the market, we bought it in the deal and we're probably going to buy more today," said Michael Price, president of MFP Investors LLC in New York and manager of some of the best-performing mutual funds of the 1980s and 1990s. "When banks are being refinanced and they're replenishing their old balance sheets with new capital, it's very attractive."
In May, Bank of America raised $13.5 billion issuing 1.25 billion common shares at $10.77 each in response to government stress tests and to help cushion losses tied to the takeover of Merrill Lynch & Co. The tests gauged the ability of banks to absorb losses in an extended recession, prompting Bank of America to boost capital by almost $40 billion.
Succession BattleThe repayment may ease efforts to replace Chief Executive Officer Kenneth D. Lewis, who's leaving the bank Dec. 31. His successor inherits a company ranked first by assets and deposits in the U.S. The plan saves billions of dollars in TARP dividends and ends extra U.S. oversight of operations and salaries, Wells Fargo Advisors analyst Matthew Burnell wrote.
"Repaying TARP is going to allow a lot more flexibility for the incoming CEO as he handpicks his individual management team," said Todd Hagerman, an analyst in New York with Collins Stewart Plc, who has a "buy" rating on Bank of America. Bank of America fell to $15.63 at 9 a.m. in early New York trading, down from its $15.76 close yesterday. Michael Mayo of Calyon Securities USA Inc. raised his rating to "outperform" from "underperform" and boosted his target to $19 from $12, which had been the lowest among analysts surveyed by Bloomberg.
Citigroup LeftThe bank plans to repay the U.S. using $26.2 billion of cash and the proceeds from the share sale, according to a statement. It expects to increase equity by $4 billion through asset sales and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees.
Bank of America Corp.'s plan to repay $45 billion of bailout funds would leave Citigroup Inc. (C) as the only large bank subject to compensation reviews by Treasury paymaster Kenneth Feinberg.
Wells Fargo & Co. (WFC), based in San Francisco, raised $8.6 billion in May in a secondary offering, while Goldman Sachs Group Inc. (GS) sold $5.75 billion in shares in April. Wells Fargo accepted $25 billion in TARP funds last year. Goldman has repaid $10 billion received through the program.
The Treasury's refusal to sell its 34 percent stake in Citigroup is hampering the bank's plans to repay $20 billion of remaining bailout funds, people familiar with the bank said. Executives at the New York-based lender are growing frustrated because they can't sell stock to raise money for repayment until the Treasury signals when and how it will unload its 7.7 billion shares, said the people, declining to be identified because the matter is under discussion.