New York: World’s largest finance services company Bank of America (BoA), which has acquired investment banking major Merrill Lynch and Countrywide Financial, has slashed its dividend and plans to raise $10 billion adding another $1.4 billion to the company’s capital.
The company initiatives aim at raising capital, targeting an eight per cent tier 1 capital ratio, which includes sale of common stock for raising $10 billion, a Bank of America statement said.
In addition, the board of directors declared a quarterly dividend on common stock of $0.32 to be paid on 26 December, 2008 to shareholders of record on 5 December, 2008.
Assuming the current number of issued and outstanding shares, the reduction from $0.64 paid in recent quarters would add more than $1.4 billion to the company’s capital each quarter, the statement added.
“We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months,” BoA Chairman and CEO Kenneth D Lewis said.
“We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago,” he added.
“We now believe it is important to be at or near our 8% Tier 1 capital ratio target given the recessionary conditions and outlook for still weaker economic performance which we expect to drive higher credit losses and depress earnings,” he said.
We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability, added Lewis.
BoA Corporation reported a decrease in the net income of $1.18 billion in the third quarter 2008 from $3.70 billion a year-ago.
Lower earnings in the third quarter was due to significant increase in provision expense, as credit costs continued to rise, partially offset by advances in various income categories largely as a result of the acquisition of countrywide Financial Corporation on 1 July and LaSalle Bank.
Countrywide results were not included in prior period results, the statement said.
Commenting on the financial turmoil Lewis said: “These are the most difficult times for financial institutions that I have experienced in my 39 years in banking”.
On dividend reduction Lewis said,“We know many investors in our stock are quite disappointed with a dividend reduction”.