Bank of America Corp, the largest US lender, raised $19.3 billion selling securities at $15 apiece in the biggest sale of stock or preferred shares by a US public company since at least 2000.
The bank, which plans to repay $45 billion of US 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.
“It’s a good thing for Bank of America, it’s a healthy thing and it needs to happen,” said Jason Brady, a managing director of Santa Fe, New Mexico-based Thornburg Investment Management, whose $4 billion Thornburg Income Builder Fund owns Bank of America bonds. “It doesn’t mean necessarily that Bank of America stock is a wonderful investment because they spent a bunch of money to get the government out of the way.”
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.
The repayment may ease efforts to replace Chief Executive Officer Kenneth D Lewis, who’s leaving the bank December 31. His successor inherits a company ranked first by assets and deposits in the US. The plan saves billions of dollars in TARP dividends and ends extra US oversight of operations and salaries, Wells Fargo 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.