Bank of America Raises $13.5 Billion Selling Shares (Update2)

By David Mildenberg

May 20 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, raised about $13.5 billion by selling stock after U.S. regulators determined it needed more cash to weather an extended recession.

Bank of America 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 Officer Kenneth Lewis said May 7.

Lewis, told by U.S. regulators earlier this month that he needs to raise $33.9 billion, took advantage of a 40 percent increase in Bank of America’s market value during the past month to bolster capital. Wells Fargo & Co. and Morgan Stanley were the first banks to respond to the government’s stress tests when they sold a combined $16.6 billion of stock and bonds on May 8.

“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.

Bank of America was up 32 cents at $11.57 in German trading today, after closing 4.1 percent lower on the New York Stock Exchange. It has more than tripled since falling to a 25-year low on March 6.
The bank has said it expects to add another $10 billion of capital through asset sales and at least $7 billion from an improvement in pretax profits. The figures may change as the company considers options to achieve its $33.9 billion target, spokesman Jerry Dubrowski said in a phone interview.

‘No Set Formula’ 

“There is no set formula in how much of each category we need to accomplish,” Dubrowski said. “We have a target and we’ve talked about a number of different ways to get there.”

Bank of America may post a $4 billion after-tax gain from last week’s sale of 13.5 billion China Construction Bank Corp. shares, according to a May 17 estimate from Citigroup Inc. analyst Keith Horowitz. The company is considering a sale of its Columbia Funds asset management group and First Republic Bank, the private bank acquired in the takeover of Merrill Lynch & Co.

Bank of America faces potential losses of $136.6 billion, equal to 10 percent of loans, for 2009 and 2010 under the Fed’s adverse scenario for the U.S. economy. The stress tests project an economic scenario much gloomier than most analysts predict, Lewis said on a May 7 conference call.

Earnings Estimates 

“We are comfortable with our current capital position in the present economic environment,” Lewis said at the time. “The stress test asks what if the economy does much worse than most experts project.”

Analysts at Goldman Sachs Group Inc. raised their investment rating on Bank of America this week to “buy” from “neutral,” saying the company may earn 25 cents a share in the second quarter. The average estimate of 20 analysts surveyed by Bloomberg is for a profit of 2.7 cents.

“The worst is over for Bank of America and it will have absolutely no problem raising more capital,” said Kim Yong Tae, head of overseas investment at Yurie Asset Management Inc. in Seoul, which runs $2 billion. “The minute the U.S. government started pumping taxpayer money into lenders its financial-system risks started easing, and are now completely gone.”

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net
Last Updated: May 20, 2009 04:10 EDT