BofA boosts capital by $5.9B via share exchange

Bank of America Corp. said Wednesday it raised $5.9 billion through the conversion of preferred shares for common stock as part its plan to bolster its capital base.

The federal government told the Charlotte, N.C.-based bank that it should raise $33.9 billion in capital to boost its reserves in case the economy worsens further. As part of its “stress tests” of 19 banks, the government said Bank of America needed the most additional cash to withstand a potentially worsening economy.

Combined with the sale of a portion of its stake in China Construction Bank and recent common stock sales, Bank of America has now raised $26 billion as it works to meet the government requirement.

Bank of America exchanged 436 million common shares of stock for the preferred shares. It said it could issue up to 564 million more common shares through additional preferred-share exchanges.

Preferred shares are essentially a loan that must be repaid along with interest. Common stock is an actual ownership stake in the company, so a conversion would eliminate the preferred share payments and increase the ownership base in the company to help offset any potential losses.

Bank of America said none of the preferred shares that were converted to common stock were shares held by the government as part of the Troubled Asset Relief Program launched last fall by the U.S. Treasury Department. That program provided loans to hundreds of banks amid the mushrooming credit crisis as part of an effort to alleviate stagnant markets. In return, the government received preferred shares. Bank of America received $45 billion as part of the program.

Bank of America has said it hopes to repay those loans as soon as it can.

The bank has also said it plans to sell additional assets to help meet the $33.9 billion shortfall, including potential sales of non-strategic units like First Republic Bank and Columbia Management Group. Bank of America also said it would pursue joint ventures to help improve its capital base. Operating earnings in the coming quarters can also be used to meet the capital requirement.

Last week, Bank of America raised $13.5 billion in cash through the sale of 1.25 billion shares of common stock in an “at the market” offering, which is when shares are sold in batches at market prices instead of all at once at one share price like a typical offer.

Shares of Bank of America rose 17 cents, or 1.6 percent, to $11.15 in morning trading.

Copyright 2009 The Associated Press.