The move comes after Chief Executive Officer Brian Moynihan has repeatedly said the bank does not need to issue stock to raise capital to meet new international standards. The swap allows Bank of America to take advantage of lower market values for its preferred shares and debt, the result of recent market volatility, the bank said.
The transactions would increase Tier 1 common capital and reduce interest expense and dividends paid on preferred stock and junior subordinated debt, the bank said in the filing.
Issuing new common stock, however, dilutes the holdings of current stock holders who have seen the bank's share count increase to 10.1 billion from 4.4 billion at the beginning of 2008. In that span, the bank has issued new shares for acquisitions, to build capital and to exit the Troubled Asset Relief Program.
The bank views the issuing of new shares as a swap that leaves the company with more common stock, which is more valuable for regulatory capital purposes, bank spokesman Jerry Dubrowski said.
"We think the long-term value to shareholders is a stronger balance sheet," Dubrowski said.
The No. 2 U.S. bank by assets said it could issue up to 400 million shares of common stock. Those shares would be worth about $2.7 billion at Thursday's closing price of $6.91.
The ultimate impact of the offering on earnings per common share is not expected to be "significant," according to the filing. The bank's shares, which are down about 48 percent this year, fell more than 2 percent in after-hours trading.
Dubrowski said it isn't yet clear when the swap will take place.
In August, Moynihan reached an agreement with Warren Buffett's Berkshire Hathaway Inc that could also lead Bank of America to issue more shares. Berkshire invested $5 billion in the bank in return for preferred shares and warrants to purchase 700 million shares of common stock
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