Bank of America (NYSE: BAC) Stock Sale Largest Since 2000

Posted by on Dec 7th, 2009

Bank of America (NYSE: BAC) raised $19.3 billion by selling new securities at $15.00 per share in the largest sale of preferred shares of stock by a public U.S. company during the last decade.

The bank is planning on using the funds to repay its $45 billion debt to the U.S. government. In the sale, the bank sold 1.286 billion common equivalent securities. Each security that was sold is made up of one depositary share and one warrant and is also convertible into one common share, subject to stockholder approval, according to a regulatory filing made by the Charlotte, NC-based bank.

With the repayment, Bank of America is hoping to free itself from government restrictions, especially related to executive compensation, that were placed on the bank after it accepted $25 billion in funds from the Troubled Asset Relief Program and another $20 billion in funds that was provided for its now subsidiary, Merrill Lynch.

Banks, brokerages and insurers have raised $1.5 trillion to raise capital levels after the largest financial crisis since the Great Depression which led to more than $1.7 trillion in credit losses and write-downs globally.

During the month of May, Bank of America raised $13.5 billion issuing 1.25 billion new common shares at $10.77 each in response to government “stress tests” and to help absorb losses related to the takeover of Merrill Lynch & Co. The test gauged banks’ abilities to absorb losses during an extended recession, causing Bank of America to boost its capital levels by more than $40 billion.

Bank of America is hoping that the repayment will ease efforts to find a replacement for outgoing CEO Kenneth Lewis, who is planning on leaving the bank on December 31st. Lewis’ successor inherits the largest bank in terms of assets and deposits in the United States. The plan should save billions of dollars in TARP dividends and will end additional U.S. oversight of operations and salaries.

Some analyst believe that pay restrictions imposed by the Treasury Department’s pay-master, Kenneth Feinberg, was preventing the bank from developing a compensation that would attract a top-quality executive to replace Kenneth Lewis at the end of his term.

The bank plans on repaying the U.S. government using $26.2 billion in cash and proceed from the sale of its new shares in a statement. The bank will also increase its equity by $4 billion through sales of assets and will issue $1.7 billion worth of restricted stock in lieu of year-end bonuses to some executives.