Bank of America, its capital seemingly battered by legal and settlement costs related to soured home loans, and facing new higher capital requirements may, sooner than later, have to sell some of its prized jewels.   Its soured mortgage problems, in large part, originated at Countrywide Financial, which BofA purchased in 2008.  The new capital requirements are being aggressively pushed by global regulators.

Then there is its stock, which is down 23% for the year.  Its dividend also is stuck at the crisis level of a single penny per share - notwithstanding the fact that CEO Moynihan has promised it would be increased.  The bank won't be able to fulfill that promise, so long as regulators refuse to permit Bank of America to increase its dividend until the bank’s capital position improves.  Pressure also is building from outside investors and inside Bank of America for a dramatic change. 

All told, there now is a possibility, perhaps a probability, that the bank may have to sell off some of its prized jewels - including the Merrill Lynch business.   

Selling of a Piece of the Bank.   While nothing definitive has been decided, there reportedly have been high level talks about selling portions of the bank - though no specific deal is even under consideration, and some insiders are skeptical the bank could find a buyer at an acceptable price.  CNBC's John Carney reports that some insiders say the best bet might be to spin off Merrill as a separate company through an IPO - although this might require stronger market conditions for the financial sector.   Merrill Lynch had a market cap of $64 billion in 2007, and BofA paid around $50 billion to acquire Merrill. 

It’s clear that Merrill isn't worth anything near that today.  However, it might be more highly valued outside of Bank of America than inside.  In any event, BofA must do something to repair the ongoing damage to its shares and depleted capital balance.   Selling or spinning off Merrill is, perhaps, one viable option.    [CNBC, 7/19/11]

No New Capital Raise.   Bank of America CEO Brian Moynihan remained adamant Tuesday that the bank has no intention or need to raise capital to meet new global standards, saying:  "we don’t need to raise capital” and noting that its capital, under current standards, was better than expected in the quarter.  That didn't stop analysts from peppering Mr. Moynihan during Tuesday's conference call about how the bank will push up its Tier 1 Common Equity, the strictest definition of capital, to the globally-required 9.5% of risk-weighted assets by the 2019 deadline.

Investors and analysts alike fear recent losses are keeping the bank from building its capital buffer in the same way its peers have. and global regulations will require the biggest banks to hold more capital to prevent them from failing or needing assistance in future financial crises.  Nevertheless, CEO Moynihan and CFO Bruce Thompson both have repeatedly reiterated that the bank would have Tier 1 Common Equity, as calculated by the new standards, of between 6.75% and 7% by the end of 2012.  Following that, the bank would both reduce risky assets while also building capital through earnings.

Late in the conference call with analysts, when asked what his “conviction” level was that he wouldn’t have to raise capital, Mr. Moynihan didn’t mention his confidence level in addressing that question.  [WSJ Deal Blog, 7/19/11]