NEW YORK — Bank of America 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 $45 billion in aid in just a few days to free itself from government oversight and pay restraints.
The bank said in a statement Wednesday it will use available cash and raise $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.
Bank of America 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 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."
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.
Banking analyst Bert Ely agreed that the restrictions put forth by federal pay czar Kenneth Feinberg have likely been an obstacle to finding the best possible CEO candidate.
"There could be someone saying, 'I'm not going to take this job unless you pay back the money and get out from under the pay czar," Ely said.
The Treasury Department said in a statement it was pleased that Bank of America planned to repay the TARP funds.
The bank has paid $2.54 billion to the government so far in dividends on the TARP money. BofA 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 $45 billion repayment will release the bank from pay restrictions even though Treasury still holds Bank of America warrants.
Treasury has spent about $450 billion under the TARP program, including around $290 billion poured into banks. As of Oct. 31, nearly 50 financial companies have returned a total of $72.3 billion in bailout money. Other big banks, including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, repaid their bailout funds after they were given permission to do so by the government in June.
Treasury also made $6.79 billion in dividends from the TARP money and $2.90 billion selling warrants.
Bank of America received $25 billion as part of the initial round of bailouts when the credit crisis peaked last fall. It then received an additional $20 billion in January shortly after it acquired Merrill Lynch and it was learned that the Wall Street firm had billions of dollars in losses that Bank of America did not anticipate.
The bank said it will issue $18.8 billion in what are called common equivalent securities to help fund the repayment. It currently does not have approval from shareholders to increase the number of its common shares outstanding, but once it obtains that approval, investors holding these securities will be able to swap them for common shares.
Bank of America plans to hold a special meeting with shareholders in the next few months to vote on increasing the share count. The company also said it plans to raise an additional $4 billion from the sale of certain business units in the coming months.
Whoever becomes the new Bank of America CEO will have to deal with the rising losses on loans that all banks are contending with. Consumers unable to keep up with their bills have been defaulting on loans including mortgages and credit cards.
Bank of America lost $2.2 billion in the third quarter. Its losses were offset somewhat by investment banking income from Merrill Lynch.
The bank is also still facing investigations from federal and state regulators into whether it misled shareholders about the Merrill Lynch deal, including the fact that employees were given billions of dollars in bonuses shortly before the acquisition closed Jan. 1. At the time, Bank of America was also seeking the additional $20 billion in bailout money.
AP Business Writers Stevenson Jacobs in New York and Martin Crutsinger and Daniel Wagner in Washington contributed to this story.