Is Bank Of America Preparing For Another "Non-Settlement" Settlement?

Tyler Durden's picture

When we first discussed Bank of America's "non-settlement" settlement, which has achieved nothing to remove the legal liability overhang from the firm, and merely makes it far more vulnerable to future litigation, we said: "BAC is largely underreserved for a settlement of this size which means its Tier 1 capital ratio will likely be impacted due to a major outflow of cash." Obviously the implication was that a capital raise is imminent. And while we were not exactly expecting the bank to access the equity capital markets (immediately), we knew cash would have to come from somewhere. Sure enough, Bank of America just issued $2.5 billion in 5 year bonds. So just when does the equity raise come? Two questions: is this funding simply to replenish the cash to have a decent Tier 1 ratio, or is the bank merely preparing for a waterfall of litigation now that the seal has been broken?

From Bloomberg:

Issuer:                     Bank of America
Manager(s):             Bank of America Merrill Lynch
Amount:                  $2 billion
Coupon:                  3.75 percent
Issue Price:             99.806
Maturity:                 July 12, 2016
Settlement:             July 12, 2011
Early Redemption:   Non-Callable
Spread:                  205 basis points more than governments

Issuer:                   Bank of America Corp
Manager(s):           Bank of America Merrill Lynch
Amount:                $500 million
Coupon:                Floating
Issue Price:           100
Maturity:               July 11, 2014
Settlement:           July 12, 2011
Early Redemption:  Non-Callable

h/t Manal