BofA seeks to repay $45bn by end of year
By Alex Mai at 2 July, 2009, 4:30 pm
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By Patrick Jenkins in London and Greg Farrell and Francesco Guerrera in New York
Published: May 20 2009 23:30 | Last updated: May 20 2009 23:30
Bank of America wants to pay back $45bn in bail-out funds by the end of the year, in a faster-than-expected move made possible by an accelerated programme to raise capital.
BofA is on track to raise more than $35bn in capital by the end of September, say people familiar with the matter, which it must do before paying back the $45bn bail-out money it received under the Troubled assets relief programme.
BofA’s desire to repay its Tarp money early will surprise the market.
Most analysts expect BofA to be one the last banks to do this, partly because of the large amount of the funds it received and partly because it was found to have the biggest capital shortfall of any US bank in recent regulatory stress tests.
The US government has the final say on whether and when banks that received Tarp funds are allowed to repay. The authorities have been concerned that banks’ eagerness to return the money and free themselves from the strict congressional supervision imposed under the programme would see troubled lenders repay funds before they were strong enough to do so.
BofA, found to have a capital shortfall of $33.9bn in the regulatory stress tests this month, has since raised $13.5bn of capital by selling common stock and another $4.5bn of after-tax capital from selling a stake in China Construction Bank.
People familiar with the bank’s plans say negotiations to sell some of BofA’s non-core assets are under way and, if the asset sales occur in the next few months, the bank will be able to fulfil its stress-test obligations and pay back Tarp funds from its $173bn cash reserves.
BofA believes it can raise $6bn to $7bn of after-tax capital from the sale of assets such as private bank First Republic, administration group Financial Data Services and insurer Balboa, say people familiar with the matter. The bank could also convert $9bn in preferred shares and as much as $2bn-plus in deferred tax gains.
BofA’s chief executive Ken Lewis, in London on Wednesday for a UK-US business conference, declined to comment on the Tarp repayment details but indicated he was “quite pleased” with the progress of planned asset sales.
“Every single one of our investors wants us to repay the Tarp money as soon as possible,” Mr Lewis told the FT. Meanwhile, Mr Lewis said the bank was planning to overhaul its pay system. “Going into next year, we’ll have a different system,” he said. “The mix is going to change to less variable pay and more salary.”
Later, he told the conference: “Having the government legislate compensation practices would be disastrous. But I do think that investors, directors and managers can push for changes that will help create a . . . more stable – and more humble – financial services industry.”
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