BofA Raises $19.3B to Exit TARP - Analyst Blog

Bank of America Corporation (BAC) has raised $19.29 billion by selling 1.286 billion common equivalent securities at $15 each, almost 5% below the company's closing share price on Thursday. The company took this step as part of its plan to pay back $45 billion it received under the government's Troubled Assets Relief Program (TARP).

Earlier this week, BofA announced that it will repay TARP funds using $26.2 billion in available cash and $18.8 billion in proceeds from the sale of the common equivalent securities. However, the proceeds raised from the securities are 2.6% more than $18.8 billion the company had originally planned.

Initially, BofA received $25 billion under TARP. The bank then received an additional $20 billion in January 2009 after its acquisition of Merrill Lynch, which had billions of dollars in losses unanticipated to BofA.

The move will free the bank from government involvement in its affairs and pay restrictions, even though the Treasury will hold BofA warrants. Also, the TARP repayment will make it easier for the bank to recruit a new chief executive to replace outgoing CEO Ken Lewis.

BofA’s third quarter 2009 loss came in at 26 cents per share, substantially worse than the Zacks Consensus estimated loss of 10 cents. This compares unfavorably with earnings of 15 cents in the prior-year quarter.

Results were hurt primarily by continued weakness in the overall economy as well as stress on the consumers, resulting in high credit costs and loan loss. Though earnings benefited from the profit generated by its wealth management business, the company experienced continued net interest yield compression and credit quality deterioration.

Additionally, the company is facing problems over new CEO appointment and litigation issues over the Merrill Lynch acquisition. Revenues are also expected to be negatively affected by the new credit card regulation. However, we anticipate continued synergies from the company’s large scale operation and balance sheet restructuring.
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