NEW YORK – Bank of America’s chief executive Ken Lewis laid out his plans for raising new capital to meet regulatory requirements after the government said the nation’s largest bank is facing a $33.9 billion shortfall.
In a wide-ranging interview with CNBC, Lewis also said Friday that the economy is bottoming and that he plans to remain in charge of the bank through the recovery.
The Charlotte, N.C.-based bank will raise capital through asset sales, earnings in the upcoming quarters and raising capital from private investors, Bank of America officials had said during a conference call Thursday night. The bank believes those actions should allow it to avoid needing to convert into common stock some of its $45 billion in government loans under the Troubled Asset Relief Program.
Bank officials said during Thursday’s call it is mulling sales of its Columbia asset management unit, as well as several other businesses, and may enter into several joint ventures. It previously said it planned to sell its First Republic Bank unit, which it inherited when it bought Merrill Lynch & Co. Those sales could help it raise $10 billion.
Another $17 billion will likely be raised through the issuance of common stock, including through converting at less than face value some preferred shares held by private investors. The rest of the capital could come from cash flow from operations in the coming quarters.
Bank of America shares rose 70 cents, or 5.2 percent, to $14.21 in morning trading Friday.
On Thursday, the government announced the results of its bank stress tests, indicating that Bank of America would need an additional $33.9 billion in capital to meet potential losses if the economy worsens. The bank will have six months to raise capital to create that financial cushion.
“We have significant opportunities to meet our target. We do not need new government money. And we do not intend to convert the existing TARP money we have. Our game plan is designed to help get the government out of our bank as quickly as possible,” Lewis said on Thursday’s call with analysts.
In the CNBC interview Friday, Lewis said he plans to remain as CEO to help the bank navigate raising the required cash to meet the government’s stress-test results and repay the TARP funds.
Shareholders voted narrowly last week at the bank’s annual shareholders meeting to split the chairman and CEO positions at the bank, stripping Lewis of the chairman’s role. Lewis served as chairman and CEO since 2001.
Walter E. Massey, president emeritus of Morehouse College in Atlanta, was elected by Bank of America’s board to replace Lewis.
Investors have been upset in recent months over a tremendous drop in the company’s stock price, continuing losses and ongoing government investigations surrounding Bank of America’s acquisition of Merrill Lynch & Co.
After the deal was sealed Jan. 1, Merrill Lynch reported $15 billion in fourth-quarter losses and it was learned that Bank of America had approved the early payout of billions of dollars in bonuses to Merrill Lynch employees.
Lewis pledged during the conference call Thursday to be responsive to shareholder anger, saying “you reflect on it, and try to see the trends and themes that were being stressed, and react to them.”
Lewis said he does not plan to walk away until he can help the bank complete its turnaround and repay the government loan. He told CNBC that he is likely to step down as CEO by the time he turns 65 in three years — the traditional retirement age for executives at the bank.
In the meantime, the bank said it is looking for new directors. The company lists 18 directors on its board. It’s unclear how many directors could be affected or who might step down, except Massey did say during a call with the media Thursday that the bank will seek new directors with more banking and financial experience.
Economic conditions for completing the plan and paying off the loan have improved dramatically in the past two months as the stock market has rebounded from multiyear lows and data has indicated the economic downturn might be slowing.
By Stephen Bernard, Ieva M. Augstums