Bank of America Planning Stock and Asset Sales to Appease Government Requirements

By Jason Simpkins
Managing Editor
Money Morning

Bank of America Corp. (NYSE: BAC) plans to sell assets and issue more common stock after being told by the federal government that it must raise $33.9 billion to adequately guard against "more adverse" economic conditions.

Bank of America was one of 10 banks told by the government to raise more capital following the so-called stress test. The government concluded that BofA faces a potential $136.6 billion in losses from troubled loans and investments in 2009 and 2010. The bank's $34 billion capital shortfall was more than twice that of Wells Fargo & Co. (NYSE: WFC), which had the second greatest capital need.

BofA Chief Executive Officer Kenneth Lewis said Thursday that his company will start closing the capital shortfall by raising $17 billion in common equity, both by selling new shares and converting a portion of its privately held preferred shares into common shares, MarketWatch reported. The bank said this could involve the issuance of 1.25 billion common shares of stock.

The company intends to raise $10 billion by selling off some of its assets, including its First Republic private-banking unit and asset manager Columbia Management.

Citing people familiar with the matter, the Financial Times reported earlier this week that BofA is considering selling an $8 billion stake in China Construction Bank (CCB). BofA currently holds 39.09 billion H shares of CCB, or 16.73% of the company's total stock capital.

BofA was free to cut a third of its stake as of Thursday, as it marked the expiration of a lockup period for the holding. But as of Friday, CCB had not received any notice from BofA.

"China Construction Bank hasn't received a notice from Bank of America on the stake sale,"Yu Baoyue, an official at the bank's news department, told the Dow Jones Newswire.

In addition, Yu said that even if the sale takes place in coming days, he believes "Bank of America will sell down its stake in several steps instead of offloading the holdings in one go."

When asked if he had any plans to part with any of Merrill Lynch & Co.'s investment banking operations, Lewis said: "Absolutely not."

In addition to selling assets BofA is "in discussions to terminate and abandon" an insurance policy it purchased from the government to guard against $110 billion in troubled assets. Terminating that policy will would free up an additional $4 billion, Lewis said.

The company also expects to add another $7 billion from earnings and "various other items."

"Our game plan is designed to get the government out of our bank as quickly as possible," Lewis told reporters on a conference call. "Frankly, there's been a lot of noise around our company. We hope these changes will help quiet some of that noise.

News and Related Story Links:

  • Dow Jones:
    China Construction Bank: No Word On Bank Of America Shr Sale