Bank of America (BAC) said Thursday that it might issue 400 million new shares and disclosed plans to exchange preferred securities for a total of $6 billion of common shares and debt. The moves come after repeated statements by CEO Brian Moynihan that it would not issue new shares.
The plans were disclosed in BofA’s quarterly filing to the Securities and Exchange Commission, which also stated that the bank may need to post nearly $10 billion in additional collateral against derivatives contracts if it suffers more credit-rating downgrades.
“The uncertainty in the market evidenced by, among other things, volatility in credit spread movements, makes it economically advantageous at this time to consider retirement of issued junior subordinated debt and preferred stock,” the bank said in its SEC filing.
BofA stock has declined sharply this year and traded at roughly $6.60 per share on Friday, off roughly 4.5%. Over the past 12 months, it has fallen about 40% vs. a decline in the same period of the S&P and Dow Jones of approximately 5%. In the last six months, it dropped 45%, while the major indexes have moved down less than 10%.
“It looks like this will be dilutive to shareholders, but that’s the minor issue,” Richard Bove of Rochdale Securities told Bloomberg. “The major issue is they said they wouldn’t issue stock, and this may be one too many statements to investors that didn’t turn out true.”
Also Thursday, BofA-Merrill Lynch said it launched the Dim Sum Index to track the performance of offshore bonds in Hong Kong denominated in the Chinese currency. The Dim Sum Index covers about half of all outstanding debt denominated in CNH, or the Chinese currency deliverable in Hong Kong, and targets corporate, sovereign and quasi-government debt.
“The Dim Sum Index gives investors a comprehensive picture of the structure, risk characteristics and performance of this rapidly growing asset class,” said Phil Galdi, head of Merrill’s global bond index research, in a statement.