Bank of America Corp. (NYSE: BAC), the largest bank in the United States in terms of assets, announced that it will repay the $45 billion of U.S. government bailout funds that it received as part of the Troubled Asset Relief Program (TARP) that it had participated last year.
The bank plans on repaying the government using $26.2 billion worth of “excess liquidity” and an additional $18.18 billion from the sale of various securities, according to the statement. The company plans on increasing its equity by $4 billion from various asset sales and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees.
Bank of America received two rounds of funding from the United States including $20 billion to curtail losses prevent to the bank’s controversial takeover of Merrill Lynch & Co, as well as $25 billion initially allotted to Bank of America under the Troubled Asset Relief Program.
William Fitzpatrick, an analyst at Optique Capital Management, said that “It looks like this was done for the incoming chief executive…ou take out the compensation restrictions and everything else that went along with the government ownership.”
Another analyst at Morningstar agreed that the repayment would be highly beneficial to Bank of America’s CEO Search. The analyst, Jaime Peters, said that “This is huge for Bank of America’s ability to attract a new CEO. He continued, “No longer will they have to say we don’t know how much we can pay you unless some guy in Washington D.C. tells us.”
The repayment plan was negotiated by the company’s Chief Risk Officer Greg Curl and Chief Financial Officer Joe L. Price, according to several sources. These two executives had approval from the company’s board of directors to close the deal once regulators including the Treasury Department, the Federal Reserve, and the Office of the Comptroller of the Currency agreed to it.
