As part of their deal to pay back TARP funds, the Federal Reserve has given Bank of America (NYSE:BAC) till the summer to name businesses in can sell in order to raise $4 billion in common equity.
Last week the banking giant raised $19 billion in securities to also pay back part of the $45 billion it owes to the taxpayers via the Troubled Asset Relief Program.
Some of the assets some analysts believe would be top candidates to divest are its U.S. Trust Corp. wealth-management unit, the BlackRock (NYSE:BLK) money management division and its stake in Banco Itau, of Brazil.
What the Fed isn’t allowing the bank to sell is its securities, as it’s attempting to protect the lending of the company from being weakened by the selling of loans. There is also the possibility that it is a move to have Bank of America start to decrease its size.
In a Thursday regulatory filing, Bank of America disclosed they would be required by the Federal Reserve Board to sell ” identified businesses, acceptable to the Federal Reserve Board, for which we have contracted by June 30, 2010 and which are consummated by the end of 2010.”
Although Banco Itau, of Brazil would probably be the least problem to get rid of terms of negative impact on BofA, BlackRock and U.S. Trust Corp. are definitely strong assets the bank would resist selling, as they would probably take some revenue hits as a result, and publicly stated in the past they want to keep them.
Even so, the acquisition of Merrill Lynch does give them an outlet to offer personal finance advice to its wealthy clients, so it would be dependent on if they could attract their current customers from BlackRock and U.S. Trust Corp. to the Merrill brand.
Others think some of the assets which came with the acquisition of Countrwide Financial could be a way to raise the $4 billion, especially parts of the property and life insurance unit. Last quarter Bank of America generated over $700 million in revenue from the lucrative insurance business, and so would also be hesitant to go that route.
The problem is long term, the selling of these units will have a negative impact on the company, as well as the issuing of more common stock. So either way there is going to be some pain associated with the capital requirements, but it looks like Bank of America has no choice, so one way or another they’ll have to take the hit somewhere.
