BofA will plug capital hole with stock sales, asset sales
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
Bank of America Corp., facing a $33.9-billion capital deficiency based on the government’s ‘stress test,’ today said it would fill the gap by issuing new common stock, converting private investors’ preferred stock, selling assets and boosting earnings.
‘We will not need any new government money,’ CEO Ken Lewis told analysts on a late-afternoon conference call. ‘Our game plan is designed to help get the government out of our bank as quickly as possible.’
Wall Street seemed to believe him: BofA shares jumped to $14.72 in after-hours trading. The stock had gained 82 cents, or 6.5%, to $13.51 in regular trading, the fourth consecutive advance.
Of the 19 major banks the government tested for their ability to withstand a possible surge in loan losses, BofA was found to need the largest capital boost in total dollars: $33.9 billion.
Like Wells Fargo & Co., which must raise $13.7 billion, BofA took issue with what Lewis said were the government’s ‘onerous’ projections about the economy and the bank’s earnings performance.
‘Frankly, we think that [worst-case] scenario is unlikely, and looking like less and less of a possibility every day,’ Lewis said.
He asserted that the government had severely overestimated BofA’s likely losses on such holdings as prime mortgages and securities it inherited when it bought Merrill Lynch & Co. late last year.
Banks, however, have no choice but to comply with their regulators’ capital demands. They face a deadline of Nov. 9.
BofA said it would raise $17 billion -- half the total needed -- by selling new common shares to investors via so-called at-the-market sales and by offering to convert private investors’ preferred shares to common shares.
The bank said it was preparing to sell up to 1.25 billion new common shares over time. It has 6.4 billion outstanding now, so the total would grow by about 20%.
BofA expects to raise an additional $10 billion by selling certain business units, including its Columbia Management mutual fund unit as well as First Republic Bankof San Francisco (acquired when BofA bought Merrill).
Lewis said the bank planned to fill the final $7 billion of the gap through earnings growth over the next six months.
BofA took $45 billion in taxpayer money under the TARP program. Lewis did not provide a timetable for repaying that sum but said the bank believed its capital-raising plan was ‘a big first step’ toward ending its partnership with the government under TARP.
-- E. Scott Reckard and Tom Petruno