Bank of America Corp Chief Executive Kenneth Lewis said the worst of the economic downturn has likely passed and conditions will not worsen as much as feared, a day after his bank raised $13.47 billion in a common stock offering, .

We are on the cusp of what will turn out to be a slow but sustainable economic recovery, Lewis said at a conference in London on Wednesday. There will continue to be a lot of pain ... but I think the worst is most likely behind us.

He forecast modest growth in the United States and Europe in the second half of 2009.

Lewis, whose bank bought Merrill Lynch & Co on January 1, also said corporate and investment banking pay practices must be reformed, with pay being tied to performance and banks being able to claw back pay from people who took on too much risk.

Reuters obtained a copy of Lewis' speech.

Regulators earlier this month ordered Bank of America, the largest U.S. bank, to find $33.9 billion of capital in light of a government stress test of its ability to withstand a deep recession.

Bank of America was among 19 big banks subjected to the tests. Ten were ordered to raise capital; Bank of America was told to raise more than twice as much as anyone else.

The $33.9 billion is separate from the $45 billion the bank received from the government's Troubled Asset Relief Program, including $20 billion in a January bailout to help it absorb Merrill.

Late Tuesday, the Charlotte, North Carolina-based bank said it has sold 1.25 billion shares, equal to nearly 20 percent of its shares outstanding, at an average price of $10.77 each.

The bank benefited from a rise in its stock price, which has more than quadrupled since bottoming in February. But the shares remain far below their $55.08 peak in November 2006.

Several other large U.S. banks have also issued stock or debt, or both, this month, including Citigroup Inc , Morgan Stanley and Wells Fargo & Co .


Bank of America has raised about $20.8 billion this month, including $7.3 billion from the sale of part of its stake in China Construction Bank Corp <601939.SS>. It has said it may sell its Columbia asset management unit and the First Republic Bank unit, which it inherited when it bought Merrill.

Regulators said that in a severe downturn Bank of America could face a potential $136.6 billion of losses from loans, investments and trading in 2009 and 2010.

Lewis said this outcome is much, much worse than anything that is likely or anticipated at this point, but added that credit losses will take a heavy toll over the next few quarters.

Last month Lewis was stripped of the post of Bank of America chairman amid shareholder anger over the Merrill merger and the bank's falling share price.

Regulators are examining Merrill's awarding of $3.6 billion of bonuses to its employees, many in units that caused the company to lose $27.6 billion last year.

Bank of America has said it did nothing improper in the process that led to the awards, and Lewis said banks should take the lead in ensuring that pay is fair.

Many investment banking pay practices have been unsustainable for a long time and need to be reformed, Lewis said. He said reform must include pay for performance that supports long-term growth, and a reduction of incentives for inappropriate risk-taking through forfeitures and clawbacks.

Lewis added it would be disastrous if the government legislated compensation practices.

(Reporting by Jonathan Stempel; editing by John Wallace)