Bank of America, the US financial giant whose purchase of Merrill Lynch last year took it to the brink of collapse, said it had all but raised the $34bn (£21bn) in extra capital that the federal government had demanded.
The bank said that a slew of investors had agreed to swap preferred stock in the company for new common shares, in effect plugging the hole in the balance sheet identified by last month's government "stress test" of the bank.
News of BofA's inching back towards health came on the day that Morgan Stanley, another bank that had seemed likely to be sucked under during last autumn's financial panic, said it had been able to raise a further $2.2bn to shore up its finances. Morgan Stanley, which had also raised $8bn in stock and debt last month, joins the growing list of banks saying that they plan to pay back money from the US taxpayer, which was doled out last October under the Troubled Asset Relief Program (Tarp) to try to prevent a collapse in confidence in the financial system.
On Monday night, JPMorgan Chase and American Express had both raised new funds to help convince regulators that it is safe for them to pay back the government money.
BofA, which has taken $45bn in two tranches of taxpayer funds, is not fit enough to join the first wave of banks paying back Tarp funds, but said that it would be able "to reduce reliance on government support for the company". Last month it was told to raise $33.9bn in new capital, the largest shortfall of any bank which underwent the government's stress test. Since then it has raised $13.5bn from the sale of new shares and also sold its stake in China Construction Bank. Yesterday it announced that it had additionally persuaded the holders of $9.5bn of BofA's preferred stock – a type of investment that does not count towards capital adequacy rules – to swap their holdings for common shares. The swap takes its told new capital to $33bn. Joe Price, chief financial officer, said the bank would now comfortably exceed the government's stress test target, which aims to give financial institutions enough of a capital cushion to withstand a much longer recession.
Morgan Stanley priced its $2.2bn stock offering at an 8.2 per cent discount to Monday's closing share price. JPMorgan said it had raised $5bn by selling shares at a 2.4 per cent discount to the previous night's close.
JPMorgan is already one of the strongest banks and was not told to raise money as a result of the stress tests. However, regulators require that banks show they can tap both the private debt markets and the equity market for new capital before they are allowed to pay back Tarp funds.
Tarp money comes with restrictions on executive salaries and greater political scrutiny, and paying it back will leave JPMorgan "free and clear, like a real American free citizen, corporate citizen, like we were in the past," the bank's chief executive, Jamie Dimon, said on a conference call on Monday.Reuse content