Bank of America Raises Billions Selling Extra Stock

May 20, 2009 – 4:54 pm – No Comment

Bank of America said yesterday that in less than two weeks it has raised over $13.4 billion through the sale of 1.25 billion extra shares of stock at an average price of $10.77 each. “We’re pleased to have this portion of our capital plan completed,” said Chief Financial Officer Joe Price, in a statement Tuesday. “This strengthens and diversifies our capital structure.”

Sometimes corporations have to weigh the options when it comes to stock sales. In an economy like this, it is sometimes a good thing to put some extra stock out there in hopes investors will buy it. That move may make each individual stock worth less at first due to inflated numbers of traded stock. However, it will gain revenue, similar to that $13.4 billion Bank of America just earned, quickly strengthening the company, which will restore the price of individual shares of stock.

The government recently released the results of “stress tests” it ran on the nation’s 19 largest banks to determine if they would need additional capital to protect against losses should the economy worsen. It found that Bank of America would need an additional $33.9 billion, more than any other bank reviewed. Among the strongest were JPMorgan & Chase, Goldman Sachs, and others. Bank of America was one of the weakest. With this new development, Bank of America is just over one-third of the way toward what the “stress tests” determined would be considered full strength upon sales of new stock alone.

Bank of America launched a plan to raise capital through asset sales and stock offers. It recently sold part of its stake in China Construction Bank to Asian investors for about $7.3 billion, which when coupled with these new stock sales, puts the bank well past the halfway mark in its capital raising goals.

Executives have said they are considering sales of other assets they hold for capital raising purposes. Bank of America previously said it planned to sell its First Republic Bank unit, which it inherited when it bought Merrill Lynch & Co. in January. These moves could potentially help raise $10 billion of more capital, quickly putting them in a more secure position.