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Bank of America Slides as Stockholders Ponder Dilution
hurricanemaxi ned stu 06, 2011 10:47 am
Bank of America Corp. (BAC), whose stock lost about half its value this year, led lenders lower in New York trading as the companys plan to bolster its balance sheet renewed concern that shareholders may see their stakes diluted.
The bank said late yesterday it may exchange preferred securities for a total of $6 billion of common shares and debt, a plan that could cut interest and dividend costs and improve capital levels, according to the Charlotte, North Carolina-based lender. The firm may issue 400 million shares and $3 billion of senior notes, according to a regulatory filing, taking advantage of lower prices for the banks existing securities.
While the deals may help Chief Executive Officer Brian T. Moynihan shore up the balance sheet, analysts said it may cost him some credibility. The drop in the banks market value this year was caused in part by concern that expenses from faulty mortgages may force the company to issue new stock, a path Moynihan has repeatedly said wasnt necessary.
It looks like this will be dilutive to shareholders, but thats the minor issue, Richard Bove, an analyst with Rochdale Securities LLC in Lutz, Florida, said in a telephone interview. The major issue is they said they wouldnt issue stock, and this may be one too many statements to investors that didnt turn out true.
Exchanging Shares
Bank of America fell 4.1 percent to $6.63 as of 10:31 a.m. in New York trading, the biggest drop in the 24-company KBW Bank Index as well as the Dow Jones Industrial Average. The lenders $2 billion of senior unsecured notes due in May 2021 rose 0.5 cent to 92.8 cents on the dollar at 8:59 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Holders of Bank of America preferred shares and trust securities may receive common stock, debt, or a combination of both, depending on the transaction, said Jerry Dubrowski, a company spokesman. The lender said the deals may help earnings per share for the quarter in which they are completed. Longer term, the impact wont be significant, the bank said.
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The bank said late yesterday it may exchange preferred securities for a total of $6 billion of common shares and debt, a plan that could cut interest and dividend costs and improve capital levels, according to the Charlotte, North Carolina-based lender. The firm may issue 400 million shares and $3 billion of senior notes, according to a regulatory filing, taking advantage of lower prices for the banks existing securities.
While the deals may help Chief Executive Officer Brian T. Moynihan shore up the balance sheet, analysts said it may cost him some credibility. The drop in the banks market value this year was caused in part by concern that expenses from faulty mortgages may force the company to issue new stock, a path Moynihan has repeatedly said wasnt necessary.
It looks like this will be dilutive to shareholders, but thats the minor issue, Richard Bove, an analyst with Rochdale Securities LLC in Lutz, Florida, said in a telephone interview. The major issue is they said they wouldnt issue stock, and this may be one too many statements to investors that didnt turn out true.
Exchanging Shares
Bank of America fell 4.1 percent to $6.63 as of 10:31 a.m. in New York trading, the biggest drop in the 24-company KBW Bank Index as well as the Dow Jones Industrial Average. The lenders $2 billion of senior unsecured notes due in May 2021 rose 0.5 cent to 92.8 cents on the dollar at 8:59 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Holders of Bank of America preferred shares and trust securities may receive common stock, debt, or a combination of both, depending on the transaction, said Jerry Dubrowski, a company spokesman. The lender said the deals may help earnings per share for the quarter in which they are completed. Longer term, the impact wont be significant, the bank said.
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k2 incense
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