Bank of America's Shareholder Suicide Vote
Bank of America common shareholders have been through a lot of pain in the past few years. Maybe it’s time to end it all.
It may sound like a joke, but shareholders could soon be forced to decide whether to approve an increase in the bank's overall share count, as it bumps up against regulatory limitations, according to a report Monday from Deutsche Bank.
As of its latest quarterly filing, Bank of America was authorized to issue up to 12.8 billion common shares and had about 10.1 billion common shares outstanding, some 16 percent more than the 8.65 billion shares that were outstanding at the end of the third quarter last year.
The 10.1 billion in outstanding shares does not include Berkshire Hathaway's warrants to buy an additional 700 million shares, and another 310 million shares Bank of America has issued in order to retire preferred stock.
A spokesperson for Bank of America declined comment.
Bank of America will likely want to issue more shares for compensation and other purposes, and it has already reserved 2.2 billion in common stock "for future issuances under employee stock plans, common stock warrants, convertible notes, and preferred stock," according to its third-quarter filing.
Deutsche Bank analyst Matthew O'Connor expects the bank to raise an addition $15 billion in common stock in 2012, which would be about 2.5 billion shares at Monday's closing price of $5.79.
The issuance of stock would be to strengthen Bank of America's balance sheet so it meets new regulatory requirements. Bank of America has also been selling off assets to accomplish this goal.
But maybe the bank should just forget about the share issuance part. After all, that only drives down the price of shares further.
It's simple supply and demand: The more stock Bank of America issues, the less it is worth.
Bank of America is trying to slog its way through its difficulties. The bank reached a $315 million settlement with class action plaintiffs who claimed its Merrill Lynch unit made false statements in the marketing of mortgage-backed securities, according to Bloomberg, which cited a filing in Manhattan federal court.
Plaintiffs have requested a March 21 hearing to approve the settlement.
Still, the settlement is relatively insignificant considering Bank of America has paid out $3.8 billion in "litigation-related expense" in the past nine months, excluding lawyers' fees.
While it estimates ongoing costs won't exceed reserves by more than $3.6 billion, "for those matters where an estimate is possible." There's lots of wiggle room in that language, and Bank of America has shown already that it has no problem with wiggling.
Maybe the best thing for shareholders would be to sell off the rest of Bank of America, allowing the company's highly paid executives to find themselves new jobs on somebody else's dime.
Assuming someone wants to hire them.
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