Bank of America (BofA) Corp has been having a tough time finding a new CEO willing to accept the restrictions that came as a condition of bailout funds. But recruitment is sure to be easier now that the bank plans to pay back its US$45 billion in aid in just a few days to free itself from government oversight and pay restraints.
The bank said in a statement on Wednesday it will use available cash and raise US$18.8 billion in capital to repay the money, which it received during the height of the credit crisis last year and after its purchase of Merrill Lynch & Co earlier this year.
The bank has been searching for a successor to CEO Ken Lewis since it announced in late September that he planned to retire on Dec. 31. But having accepted the Troubled Asset Relief Program (TARP) funds, the bank has been under close oversight and had to answer to pay czar Kenneth Feinberg, which hasn’t made the job very attractive.
“It removes the stigma that we’ve had as a company,” spokesman Bob Stickler said of the planned repayment.
“We become more attractive to a CEO candidate. Whether that means we get somebody external is impossible to say,” Stickler said.
The bank has said it was considering candidates from inside and outside the company. Stickler said a decision is expected “in the near future.”
“It’s great news,” said Alan Villalon, senior research analyst at Minneapolis-based First American Funds. “It removes some overhang so hopefully a CEO can come in with a clean slate.”
Villalon said the effort to repay TARP might be a signal that the bank is focused on luring an external candidate.
The Treasury Department said in a statement it was pleased that Bank of America planned to repay the TARP funds.
The bank has paid US$2.54 billion to the government so far in dividends on the TARP money. Bank of America said it is not yet exercising its right to repurchase warrants that the government received in return for the bailout money.
Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.
Treasury said that the US$45 billion repayment will release the bank from pay restrictions even though it still holds Bank of America warrants.
Whoever becomes the new Bank of America CEO will have to deal with the rising losses on loans that all banks are contending with.
Bank of America lost US$2.2 billion in the third quarter. Its losses were offset somewhat by investment banking income from Merrill Lynch.
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