There is an interesting question that we would like to pose after hearing about an 800 million share or 825 million share secondary coming from Bank of America Corporation (NYSE: BAC).  If you were watching any after-hours trading levels after 4:00 PM EST today, you would have had the same thought… “Why the hell is Bank of America stock down another 5% or 6% after the close when it was down 4% today?” What we would like clarification on is whether B of A should be required to disclose this information under Reg FD (Regulation Fair Disclosure).  Furthermore, should banks and other institutions have to go back to a measure of fair disclosure of information?

UPDATED as of 7:28 PM EST: B of A did finally issue a release as you will see below…. but not the one that was affecting shares in the after-hours session. 
B of A has been under pressure in recent trading days as the stock had climbed from a low of under $3.00 up to more than $14.00 on May 8, 2009.  The reason is that the bank has been doing an “ATM” offering, which is an “at the money” offering where companies dribble shares out steadily or from time to time in the market.  It is unknown just how many shares have been sold into the market, but that has kept pressure on it.  A spot secondary offering of $8 billion or anything close would probably eliminate the need for B of A to keep raising money.  To us this sure as hell seems like a shareholder pertinent event.

The problem with this offering is that it was not disseminated by the company.  This was coming from trading desks and was then reported as “according to trading desks.”  CNBC got a note about this and other news agencies got reports on this, but details were coming from CNBC’s David Faber via an obvious cellphone call and was “according to sources.”  There was no press release and not even a sneaky backdoor communications where firms do not issue a press release but make the disclosure in an SEC filing.  We did see a 424B2 Filing as 4:37 PM, but that is just a filing for “100% Principal Protected Notes Linked to the Difference between the 30-Year and the 2-Year U.S. Dollar Constant Maturity Swap Rate.”

We would like to know is if this constitutes a Reg FD violation.  The powers that be passed Reg FD because so much information used to get leaked back in the 1990’s and then it was seen in a press release or in media reports after shares had run up or run down only to leave Joe Public holding the bag.  In Reg. FD, US-based public companies are required to simultaneously disseminate information in a manner that all shareholders can simultaneously get access to the market moving information.  This does not pertain to small hiring or firings of non-critical personnel, but a layoff of 10% of the company’s workers would fall under Reg FD.  That little SEC filing for a swap note is likely not a Reg. FD event because these are generally small.  But what about an $8+ billion spot secondary offering in the midst of an ATM capital raise?

Our aim here is to not discuss just this instance as a Reg FD event.  There have been more Reg FD events in the entire capital raising process and long before that in the financial market meltdown which the investing public found out only after losing their shirts.  It is just assumed this was never really brought up because there were almost always much larger issues at stake than just one bank and much larger issues than a pesky regulation that forced companies to actually formally disseminate news simultaneously in a manner that all market participants could react.  For that matter, you might even be able to make the case that Reg FD actually NOT being used nor being enforced might have been one of the things that kept the whole market from having come unraveled.  But that was then.

We won’t hold our breath as to whether Reg. FD in this case and in others is ever brought up at the SEC.  But if we want a game where all the players have an equal chance of participating, then this needs notion of Reg FD needs to get back on track.

There was plenty of time that these institutions got to dribble out information through trading desks and through the financial community.  I have personally seen first-hand how the news-flow game was played, because I saw it take place in the 1990’s and part of 2000.   And then I got to see this happen again on a case by case basis on many occasions throughout the last decade.   It allowed many traders to make major money and then get to exit when the public figured out what the hell happened.   If these rules and regulations are going to be on the books, it would be nice for them to actually stand for something.

This news-flow and ‘trading desk chatter’ is a cottage industry.  But this can come at the cost of the public and can come at the cost of many institutions who are not dialed in on each situation.  While the government is busy regulating every single aspect of the financial markets and every aspect of the financial community, maybe it can actually look into re-establishing the real lines of communication between the public companies and the investor community.

As of 5:30 PM EST, 6:45 PM EST and again as of 7:00 PM EST, there was still no press release.  There will likely be one either way by tomorrow morning if the offering is a real one and this will likely be forgotten about.   But the question still beckons…. Does Reg FD still exist?

Press Release UPDATE at 7:28 PM EST: Bank of America Corporation today said it has concluded its previously announced sale of common stock through an At-the-Market issuance program.

The company issued 1.25 billion shares since beginning the program on Friday, May 8 at an average price of $10.77, representing gross proceeds of approximately $13.47 billion.

“We’re pleased to have this portion of our capital plan completed,” said Chief Financial Officer Joe Price. “This strengthens and diversifies our capital structure.”

JON C. OGG
MAY 19, 2009

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