Bank of American has been denying for months that it needs additional capital but announced today that it may issue up to $2.8 billion in new stock, sending shares 2% lower after hours.
But the company isn’t raising any new capital. The money will be used to buy back junior debt and preferred shares.
What it does is raise the bank’s Tier One capital, or capital that is most-easily accessible. But if BAC was well-capitalized, like executives have been saying, why would it make this move? It certainly doesn’t benefit shareholders.
It also makes it more difficult for BAC to raise its dividend (and more likely that it will be cut). A hint came in the filing, that warned that a one-notch credit downgrade will force it to post an additional $3.2B in collateral.
At best this is a bank being cautious of the ratings agencies. At worst, it’s a bank with some news in the pipeline that may prompt a downgrade.
