Money Matters - Simplified

Bank of America sells shares, raises $13.47 billion

bank of America, the largest U.S. bank, is on a capital raising spree after the 'stress test' revealed that it had a capital shortfall of $33.9 billion

Charlotte, North Carolina, May 20: Bank of America Corp. (NYSE: BAC; TYO: 8648) made a giant leap forward toward its objective of raising additional equity capital on Tuesday. The largest U.S bank has garnered $13.47 billion in less than two weeks through the sale of its shares.

Stress Test
The U.S government conducted a ‘stress test’ on 10 of the 19 large banks in the nation to figure out the robustness of their financial health and the ability to cope with losses if the economy was to worsen further.

The results of the ‘test’ revealed that Bank of America (BofA) needed an additional $33.9 billion, more than any other bank reviewed, to bolster its finances.

Accordingly, Chief Executive Officer Kenneth Lewis was directed by the regulators to augment the capital structure to enhance the bank’s ability to handle a deep recession. Bank of America initiated a campaign to raise the capital through asset sales and stock offers.

The Charlotte, North Carolina-based bank sold 1.25 billion shares at an average price of $10.77 each under the at-the-market (ATM program). The gross proceeds from the program were close to $13.47 billion.

Joe Price, Bank of America’s chief financial officer, said, “We're pleased to have this portion of our capital plan completed. This strengthens and diversifies our capital structure."

Other plans
Recently, the bank sold off part of its share in China Construction Bank (SSE: 601939; SEHK: 0939) for approximately $7.3 billion.

The bank is also contemplating the sale of its Columbia asset management unit. Sale of First Republic Bank unit, inherited from Merrill Lynch & Co, is also on the anvil. These sales could help BofA to raise another $10 billion.

Considered as one of the healthiest survivors of the current economic crisis, BofA lost its market value heavily after it incurred losses post the purchase of Merrill Lynch. The financial services behemoth has taken an additional $20 billion from TARP funds as bailout to help it absorb Merrill Lynch. In total, the bank has to repay $45 billion of TARP money.