Bank of America Free to Exit TARP (BAC)

Bank of America Corporation (NYSE: BAC) will soon be out of the TARP.  The report was first out by CNBC’s Charlie Gasparino right after 5 PM that Bank of America is about to do a large capital raise to exit out of the TARP.  Then the Wall Street Journal reported that Bank of America will be exiting the TARP.  Its figure for a capital raise is $20 billion in new capital.  It is also reported that Greg Curl may become interim-CEO.

Bank of America has now issued a press release noting that Bank of America will repay the entire $45 billion in TARP to U.S. taxpayers. The bank will ask holders to approve an increase in shares and will use $26.2 billion in excess liquidity in the repayment here.  Asset sales are to be approved by the Federal Reserve ($4 billion approximately).  It plans about $18.8 billion in proceeds from common equity equivalent securities sales and about $1.7 billion through restricted stock issuance.

This will dwarf the GE-Comcast deal for NBC Universal all day Thursday.  Ken Lewis has not yet left, but this will be a crowning moment for him that will clear the way for him to leave the firm under a clear sky.  Still, it is hard to not make a point here that will fume many readers… Maybe Ken Lewis should just be kept on for another year.

And if you are a compensation critic from Main Street America on how much these executives make, the day after these funds are repaid this salary and compensation energy should be directed elsewhere.

Bank of America shares closed down 1.5% at $15.65 today, and shares are down 1.6% at $15.40 after the news.  Yes, this is good news that the bank can get out of the TARP and can stop having to answer to public and government criticism. But this is going to be dilutive at a minimum, and likely will be dilutive AND leveraging to its balance sheet unless you are a straight debit and credit person.

JON C. OGG
DECEMBER 2, 2009