Bank of America Corp. got an assignment from the government — decide by summer which of its businesses it can live without.
Under the deal it struck with the Federal Reserve Board last week to pay back the $45 billion it received through the Troubled Asset Relief Program, Bank of America must boost its common equity by $4 billion through asset sales. On Thursday it issued $19 billion in securities as part of the deal.
Analysts speculated that B of A may sell its stakes in a Brazilian bank and in the money manager BlackRock Inc. and its U.S. Trust Corp. wealth management unit.
Bank of America disclosed in a regulatory filing Thursday that it has to sell "identified businesses, acceptable to the Federal Reserve Board, for which we have contracted by June 30, 2010, and which are consummated by the end of 2010."
Significantly, Bank of America must sell businesses — rather than loans, or a chunk of its portfolio of mortgage-backed securities, which in the third quarter were worth $180 billion at fair value. By insisting the securities not be sold, the Fed seems to be making sure that lending, directly and through the secondary market, would not be hurt by loan sales. The central bank also appears to want Bank of America, like Citigroup Inc., to slim down.
If Bank of America cannot increase its common equity by $4 billion by selling businesses, it must raise common equity by selling shares. However, given all the dilution Bank of America shareholders have gone through this year, that option might be unattractive.
The Charlotte company has already found buyers for its First Republic Bank unit and for the long-term asset management business of Columbia Management. But when those deals close next year, the gains will be immaterial, said a person familiar with the matter.
Analysts said some businesses could be easily sold.
Bank of America's stake in Banco Itau of Brazil "is first on my list," said John McDonald of Sanford C. Bernstein & Co. LLC. "That's not really strategic."
Others said the company could sell its 48% stake in BlackRock, though McDonald said BlackRock "is a good asset to hold on to."
B of A could also consider selling U.S. Trust, the high-net-worth wealth management businesses it bought in 2007 for $3.3 billion in cash from Charles Schwab Corp.
B of A had insisted it would not sell either money manager. U.S. Trust positioned Bank of America "as one of the largest financial services companies managing private wealth in the United States," B of A said. But, if forced to sell something, it could decide to use Merrill Lynch's brand to offer advice to wealthy customers.
A Bank of America spokesman said Friday, "We continue to be very committed to U.S. Trust." He would not get into specifics about what the company might sell.
Analysts said Bank of America could divest branches or the property and casualty businesses it got through the acquisition of Countrywide Financial.
Insurance, both life and property and casualty, fell victim to the unraveling of the financial supermarket; Citi sold its insurance businesses long ago, and so did most other banks worldwide. In the third quarter, Bank of America generated $707 million in income from insurance overall.
Besides the asset sales and securities offering, the company has to make some other moves to exit Tarp.
It plans to spend $26.2 billion in excess liquidity, and an additional $1.7 billion will come from issuing restricted stock to company employees in lieu of cash compensation.