hvactec
VIP Member
11/03/2011
Bank of America has developed a plan to issue nearly $3 billion in common stock to raise capital and reduce debt, changing course after saying for months that it did not intend to sell new shares.
The new stock would be issued in exchange for preferred shares currently held by investors. The bank’s shares have been battered recently amid fears about the effect of the debt crisis in Europe and other worries that have been hanging over financial companies.
The exchange, which could involve up to 400 million common shares, could allow the bank to raise $2.76 billion, based on Thursday’s closing price of $6.91.
Brian T. Moynihan, the bank’s chief executive, has long maintained that additional share sales are not necessary to raise capital. Bank officials said the move was not driven solely by the need to increase its capital cushion, but was also an opportunity to reduce debt and interest expenses.
The plan was outlined Thursday in a filing with the Securities and Exchange Commission. A decision is not final, but the bank is likely to go ahead with the exchange shortly, according to one official.
By saving money on interest payments on the preferred shares, the move to issue new common shares would not reduce earnings and could actually add to earnings in the short term, the bank said in its filing.
In addition, swapping shares of common stock for the preferred shares will add to the bank’s Tier 1 capital base, because under international regulatory standards preferred stock does not count as common equity while common stock does.
Because the preferred stock is trading below par value, Bank of America can buy it back from investors at a price above where it is trading, yielding a gain for those shareholders. But because it is still below par, it allows Bank of America to book a gain on the difference.
read more http://www.nytimes.com/2011/11/04/b...-would-raise-3-billion.html?_r=1&ref=business
"The deal with Mr. Buffett could cause a 5 percent dilution and that, along with the 4 percent dilution from the plan announced Thursday, means “shareholders are being nickel and dimed here,”
Bank of America has developed a plan to issue nearly $3 billion in common stock to raise capital and reduce debt, changing course after saying for months that it did not intend to sell new shares.
The new stock would be issued in exchange for preferred shares currently held by investors. The bank’s shares have been battered recently amid fears about the effect of the debt crisis in Europe and other worries that have been hanging over financial companies.
The exchange, which could involve up to 400 million common shares, could allow the bank to raise $2.76 billion, based on Thursday’s closing price of $6.91.
Brian T. Moynihan, the bank’s chief executive, has long maintained that additional share sales are not necessary to raise capital. Bank officials said the move was not driven solely by the need to increase its capital cushion, but was also an opportunity to reduce debt and interest expenses.
The plan was outlined Thursday in a filing with the Securities and Exchange Commission. A decision is not final, but the bank is likely to go ahead with the exchange shortly, according to one official.
By saving money on interest payments on the preferred shares, the move to issue new common shares would not reduce earnings and could actually add to earnings in the short term, the bank said in its filing.
In addition, swapping shares of common stock for the preferred shares will add to the bank’s Tier 1 capital base, because under international regulatory standards preferred stock does not count as common equity while common stock does.
Because the preferred stock is trading below par value, Bank of America can buy it back from investors at a price above where it is trading, yielding a gain for those shareholders. But because it is still below par, it allows Bank of America to book a gain on the difference.
read more http://www.nytimes.com/2011/11/04/b...-would-raise-3-billion.html?_r=1&ref=business
"The deal with Mr. Buffett could cause a 5 percent dilution and that, along with the 4 percent dilution from the plan announced Thursday, means “shareholders are being nickel and dimed here,”
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