Bank of America capital efforts weigh on stock
Bank of America has once again tested its post-financial crisis lows, continuing its flirtation with penny stock status.
The stock has yet to break through the $5 a share support level, but no one would be all that surprised if it did. It's unclear what is motivating Mr. Market today. It may be that fears of additional dilution have further clouded the near-term outlook. Recall that on Friday, the bank completed its effort to issue 400 million additional shares of common stock and $2.3 billion in new debt, to repurchase $5.8 billion in preferred stock. The action boosted its Tier 1 common capital $3.9 billion and boosted the ratio of capital to troubled assets .29 percentage points--which is great news.
But there's a lot of debate about the future of Bank of America--a classic bull vs. bear battle--and some of that has to do with dilution concerns. The bank now has about 10.5 billion shares outstanding and is authorized to have up to 11.3 billion shares outstanding. Warren Buffett holds the right to purchase 700 million more shares. If it intends to issue more shares in significant totals, it would have to seek shareholder approval, which it would likely get though the publicity would be bad.
In any case, it's unclear if more common issuance will be required. That's still a wildcard.