Bank Of America Proves It Has Plenty Of Liquidity

Mar.22.12 | About: Bank of (BAC)

On Monday, Bank of America (NYSE:BAC) saw its stock hit $10 a share, which is nearly double the bottom it saw in December. However, an hour before the market was to close, the stock fell more than 2%, when the S&P 500 (NYSEARCA:SPY) rose. It was largely believed that the sell-off was due to technical reasons, with the stock hitting resistance levels. However, that was not the case. The stock actually slid on rumors of BofA being on the verge of issuing a secondary offering, leading to a significant fall in a relatively short period of time.

Click to enlarge

Click to enlarge

After the market closed, BofA immediately issued a statement stating that it had no intention of issuing any additional equity. As a current shareholder, I am actually glad the rumors surfaced. BofA's response shows that the company has plenty of liquidity and an equity offering seems like one of its last options.

I am also glad to see how BofA responded to the rumors. If BofA had, in fact, any intention of a secondary offering, it may have more simply responded with a "No comment".

It seems that CEO Brian Moynihan is committed to not raising capital through stock dilution. It is also good to know that BofA has excess capital amount of $1.10 per share over the Tier 1 Capital Ratio requirement. This is unlike Citigroup (NYSE:C), which failed the stress test and surprised many analysts. Citigroup was largely expected to increase its dividend as well, but will need to stall its plans as it did not meet capital requirements. The bottom line, in my opinion, is that the denial of the rumor shows that BofA has a significant amount of liquidity and that the company has no plans to raise capital at the expense of shareholders.

Disclosure: I am long BAC.