NEW YORK — Bank of America Corp., looking to take advantage of market doubts on the value of its debt, may offer up to 400 million common shares to holders of preferred shares.
The bank said in its quarterly filing that it is exploring the possibility of taking advantage of the "low market values" on its debt, calling it "economically advantageous" at this time to consider retiring the debt.
The move comes after a quarter in which the market hammered Bank of America shares and prices on protecting its debt soared due to global issues and its own problems.
The bank often has said it won't sell common shares for the sheer purpose of raising capital to meet new regulations on how much it holds. A spokesman said Thursday that the bank thinks the debt swap will boost both earnings in the near term and help its long-term goals of meeting global standards. The bank's filing reiterated that its capital position is in line to meet regulations.
According to the quarterly filing, some preferreds outstanding have annual dividend rates as high as 8.6% and the bank paid a total of $343 million in dividends to preferred holders in the third quarter. The bank will conduct the swaps in private transactions with holders, not in the open market.
The bank also said in its filing that the exchange would both boost its Tier 1 common capital and reduce the expense of paying out interest and dividends to the holders of the preferred shares or other debt. It expects the move to lift earnings, though doesn't expect that to be significant.
The bank's shares fell 1.7% to $6.79 in recent after-hours trading after rallying 2.8% to $6.91 in the regular session. The shares had fallen 28% over the past three months and 48% this year. Often this year, the bank has had to rebuff rumors it would need to sell shares, rumors that contributed to the stock fall.
In the bank's third quarter, the plunge in the value of its debt actually led it to take a $4.5 billion gain, a gain from which other competitors also benefited during the period. The bank also saw Moody's Investor Service cut its credit rating last month, while the other major ratings companies are also considering cuts.