Bank of America Corp
The money raised will help repay $45 billion in government bailout funds the bank took at the height of the financial crisis as it struggled with heavy writedowns stemming from its acquisitions of mortgage lender Countrywide and investment bank Merrill Lynch.
The bank had previously said it planned to sell shares next Monday, but it is offering shares sooner because of extraordinary interest, Chief Financial Officer Joe Price told investors on a conference call.
The offering is the biggest yet in a year that has seen at least 100 U.S. banks sell stock to strengthen their capital amid heavy writedowns on mortgages, credit card debt and business loans amid the worst recession since the Great Depression.
Price also said the bank was seeing signs of credit stabilization and that managed losses on credit cards had plateaued.
Consumers continue to experience stress...however we are seeing signs of stabilization, Price said.
ASSET SALES PLANNED
Under a pact with U.S. regulators, the largest U.S. bank by assets will sell up to $18.8 billion in securities. The remainder of the $45 billion would be repaid with $26.2 billion in cash.
The securities will convert into common stock once shareholders approve an increase in its share count.
The bank also plans to sell $4 billion of assets as part of its plan to repay funds borrowed under the government's Troubled Asset Relief Program, Price said on the call. The bank is looking at assets to sell, and to the extent it does not shed assets, the bank will issue more shares.
Repaying the money gives the bank's search for a successor to Chief Executive Kenneth Lewis -- who will retire at the end of this year -- a boost.
Returning the funds removes compensation restrictions that the bank, as a two-time recipient of TARP funds, has been under. Analysts have said the government's heavy involvement with the bank has discouraged some candidates from taking the CEO spot.
In testimony before a Senate Banking Committee hearing on Thursday, Federal Reserve Chairman Ben Bernanke said Bank of America repaying TARP funds is good news, adding that the real problems to the financial system have mostly been outside the bank holding companies.
But one top regulator cautioned that the government needs to be careful about letting big financial firms repay bailout money because there will not be more government support going forward. I think, in general, they need to be very careful with it, said Sheila Bair, chairman of bank regulator the Federal Deposit Insurance Corp.
'AN INCREMENTAL POSITIVE'
Bank of America Corp's
Concerns about possible share dilution for other banks that may follow Bank of America's lead helped depress stock prices of PNC Financial Services Inc
PNC fell 6.4 percent to close at $52.89, while Wells Fargo fell 3.5 percent to close at $26.49. Bank of America shares rose 0.7 percent to close at $15.76 after earlier gaining as much as 6 percent.
A total of about 1.03 million option contracts changed hands in BofA, three times the average daily volume, according to option analytics firm Trade Alert.
The full repayment of TARP is an incremental positive in the sense that it relieves the intense regulatory and political scrutiny tied to its receipt of government money, Credit Suisse analyst Moshe Orenbuch said in a note to clients on Thursday.
The equity offering listed Bank of America-Merrill Lynch and UBS AG's
(Reporting by Dan Wilchins)
(Additional reporting by Juan Lagorio, Doris Frankel, Chuck Mikolajczak and Elinor Comlay, Editing by Tim Dobbyn, Gerald E. McCormick and Carol Bishopric)