Like it or not, the news that Bank of America (BAC) raised $13.5 billion in equity has to make you pause. It says a lot about investor interest in the bank and the banking sector and probably even more about the stock market. This isn’t a case of people trying to jump on the train as it leaves the station or rebalancing of portfolios.
From the WSJ:
The total issuance of 1.25 billion shares by BofA is part of a previously announced plan to create a $33.9 billion buffer to meet the U.S. government’s stress-test requirements and fortify the bank against future losses as its loans and other assets are hit by the recession.
Combined with the bank’s recent $7.3 billion sale of a stake in China Construction Bank, BofA has generated an infusion of $20.77 billion, putting it more than halfway to the U.S.-set goal and easing concerns that BofA would have to take more government capital or be nationalized.
The Charlotte, N.C., bank sold a block of 825 million shares for $10 apiece on Tuesday, according to people familiar with the situation. The price was below the stock’s closing price of $11.25 in New York Stock Exchange composite trading, which will likely put downward pressure on the stock in Wednesday’s trading.
BofA previously sold an additional 425 million shares. The sales began May 8, the day after federal officials disclosed stress-test results for the nation’s 19 largest banks, including BofA. The average price of all the BofA share sales was $10.77, according to people familiar with the situation. The amount raised was in line with expectations.
That’s a pretty big vote of confidence not just in BofA but also in the financial system and the economy.