B of A plans to repay $45 billion of bailout
Bank of America Corp., the nation’s biggest lender, will repay $45 billion of government bailout funds, helping free the bank from U.S. curbs on executive pay that have hampered its search for a new leader.
The bank will repay the Troubled Asset Relief Program using $26.2 billion of "excess liquidity" and $18.8 billion from the sale of securities, according to a statement Wednesday. The firm plans to increase equity by $4 billion through asset sales and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees.
Bank of America’s two rounds of U.S. funding included $20 billion to help cushion losses tied to the takeover of Merrill Lynch & Co. The repayment will ease the bank’s effort to replace Chief Executive Kenneth D. Lewis, who announced his departure in September.
Dilution for shareholders will be "substantial," said William Fitzpatrick, an analyst at Optique Capital Management in Racine, Wis., which oversees $1 billion, including Bank of America shares. "It looks like this was done for the incoming chief executive," he said. "You take out the compensation restrictions and everything else that went along with the government ownership."
The repayment was negotiated by Chief Risk Officer Greg Curl and Chief Financial Officer Joe L. Price, a person familiar with the matter said. The two executives had approval from the board to close the deal once regulators including the Treasury, the Federal Reserve and the Office of the Comptroller of the Currency agreed to it, the person said, speaking anonymously because the details of the talks aren’t public payday loan lenders.
Curl, 61, is among candidates vying to replace Lewis. His role in negotiating the exit from TARP may enhance his prospects, according to a person familiar with the process.
The repayment saves $3.6 billion a year in dividend payments, the bank said. It also means Lewis, 62, can fulfill his vow to arrange the return of all bailout funds before his tenure ends at the end of the year. Lewis said Sept. 30 that he would step down on Dec. 31 after enduring criticism from lawmakers, regulators and shareholders about his handling of the Merrill Lynch purchase.
"We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest," Lewis said in today’s statement.
Bank of America will also be able to better compete with rivals including JPMorgan Chase & Co., which already repaid its bailout funds, spokesman Robert Stickler said.