Is A New Capital Raise In the Cards for Bank of America (BAC)?
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Over the past few sessions there has been growing speculation that Bank of America (NYSE: BAC) will issue a large amount of equity capital, possibly as high as $45 billion, to get out from under TARP. Today a number of Wall Street analysts are weighing-in on the speculation, with some suggesting an offering is possible and others suggesting it won't happen until next year.
Soleil Securities' Carole Berger said while she has no way of knowing whether this speculation is accurate it does make "some logical sense." Berger said pay czar Feinberg's restrictive compensation guidelines for companies receiving "exceptional aid" might put Bank of America at a competitive disadvantage.
Fox Pitt Kelton's Andrew MarQuardt noted that while it is possible that they may need to raise capital to pay back TARP sooner rather than later, this is not unique to Bank of America. MarQuardt does not see a TARP repayment or even a portion of the TARP repaid this year. He said issues such as a new CEO need to be addressed before a TARP payback can be considered. MarQuardt reiterated his in-line rating on the Company.
"I assume that they are going to lose money for another couple quarters," MarQuardt commented to StreetInsider.com. "I think that they (BofA) might be in a position to repay TARP in installments towards the end of next year. If they were to consider repaying all of it by the end of next year they would need to raise some capital."
MarQuardt noted that BofA CFO Joe Price mentioned at a conference recently that regulators would like to have TARP repaid on a first-in-first-out basis.
Wells Fargo Securities' Matthew H. Burnell said a share offering could actually be positive. He said, "A partial share offering - if combined with full TARP repayment - could result in 2 percent accretion to our 2010 EPS estimate of $1.64." A $45 billion issuance of common equity to repay its outstanding TARP investment would reduce the firm's 2010 EPS estimate on BofA by 11 percent to $1.46. They said the "worst-case" dilution is 11 percent, after elimination of preferred dividends. The firm reiterates an Outperform rating and $24-$27 price target range.
Media Spokesman for Bank of America, Bob Stickler refused to comment on analyst speculation of the rumor validity, however describing the rumors as logical. "We have been in the same place we have been in for months," Stickler told StreetInsider.com.
Shares of Bank of America are down 0.4 percent today after falling 5 percent yesterday.
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TARP repayment
Richard G. Newman on Oct 27, 2009 12:28 PMI would rather see dilution than having the TARP unpaid. TARP is the sword that hangs over B of A's head. 45 billion is chump change to Obama, yet it allows for control over the largest financial institution is the US. Get out from under, bite the bullet and recover.