Bank of America, the biggest US bank by assets, raised about $13.5 billion in a sale of common stock after US regulators determined it needed more cash to weather an extended recession.
The bank issued 1.25 billion shares at an average price of $10.77 each, according to a statement yesterday.
The Charlotte, North Carolina-based company plans to boost common equity capital by $17 billion through the sale of stock and by converting preferred shares mostly held by institutional investors, chief executive Kenneth Lewis said May 7th.
Lewis, told by regulators he needs to raise $33.9 billion after stress tests, seized on a 40 per cent jump in Bank of America stock in the past month to raise capital.
Other banks ordered to strengthen finances include Wells Fargo, which made an $8.6 billion offering, and Morgan Stanley, which raised $4 billion, both on May 8th.
“You have to do it while things have improved and you’re really running the gauntlet if you don’t,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd in Melbourne.
“If there’s a double dip in the economy and you’ve been twiddling your thumbs, shareholders would be baying for blood.”
The bank expects to add $10 billion more in capital through asset sales and at least $7 billion from improved pretax profits, it said on May 7th.
Those numbers may change as the lender considers options to achieve its $33.9 billion target, spokesman Jerry Dubrowski said in a phone interview.
“There is no set formula in how much of each category we need to accomplish,” he said. “We have a target and we’ve talked about a number of different ways to get there.”
Bloomberg