Bank of America is to repay $45 billion of US government bailout funds, helping free the bank from curbs on executive pay that have hampered its search for a new chief executive.
The bank will repay the Troubled Asset Relief Program using $26.2 billion of "excess liquidity" and $18.8 billion from the sale of securities, according to a statement.
The firm plans to increase equity by $4 billion through asset sales, and will issue $1.7 billion of restricted stock instead of year-end bonuses to some employees. Bank of America's two rounds of US funding included $20 billion to help cushion losses tied to the takeover of Merrill Lynch & Co.
The planned repayment will ease the bank's effort to replace chief executive Kenneth Lewis, who announced his departure in September.
Dilution for shareholders will be "substantial," said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees $1 billion, including Bank of America shares. "It looks like this was done for the incoming chief executive," he said.
"You take out the compensation restrictions and everything else that went along with the government ownership."
Bank of America, based in Charlotte, North Carolina, rose to $16.23 in German trading today, up 3.7 per cent from its $15.65 close in New York yesterday.
The shares have gained 11 per cent this year on the New York Stock Exchange after plummeting 66 per cent in 2008.