Fed Says Bank Of America Must Find Some Businesses To Sell

NEW YORK -(Dow Jones)- Bank of America Corp. (BAC) got an assignment from the government--decide by summer which of its businesses it can live without.

Part of the deal that Bank of America struck with the Federal Reserve late Wednesday to pay back the $45 billion it received from the Troubled Asset Relief Program was that the Charlotte bank must boost common equity by $4 billion through asset sales. (It also issued $19 billion in securities as part of the deal on Thursday).

Analysts' candidates for businesses that could be sold include its stakes in a Brazilian bank and in money manager BlackRock Inc. (BLK) and its U.S. Trust Corp. wealth-management unit.

Bank of America disclosed in a regulatory filing Thursday it has to sell " identified businesses, acceptable to the Federal Reserve Board, for which we have contracted by June 30, 2010 and which are consummated by the end of 2010."

Significantly, Bank of America must sell businesses--rather than loans, or a chunk of the bank's portfolio of mortgage-backed securities, which in the third quarter were worth $180 billion at fair value. By insisting the securities not be sold, the Federal Reserve seems to be making sure that lending, directly and through the secondary market, wouldn't be hurt by loan sales. Also, the Fed appears to want Bank of America, like Citigroup Inc. (C), to slim down.

If BofA can't increase its common equity by $4 billion by selling businesses, it must raise common equity by selling shares. However, in light of all the dilution Bank of America shareholders have gone through this year, that option might be unattractive.

BofA has already found buyers for its First Republic Bank unit and for the long-term asset management business of Columbia Management. But when those deals close next year, the gains will be immaterial, said a person familiar with the matter.

Analysts said there is some low-hanging fruit in terms of businesses that could be easily sold: Bank of America's stake in Banco Itau, of Brazil, "is first on my list," said John McDonald of Sanford C. Bernstein & Co. LLC. "That's not really strategic."

Others said the bank could sell its 48% stake in BlackRock, though McDonald said BlackRock "is a good asset to hold onto."

BofA could also consider selling U.S. Trust, the high-net-worth wealth- management businesses it bought in 2007 for $3.3 billion in cash from Charles Schwab Corp (SCHW).

Previously, the bank had been vocal about not selling either money manager. U.S. Trust positioned BofA "as one of the largest financial services companies managing private wealth in the U.S.," the bank stated. But, if forced to sell something, it could decide to use Merrill Lynch's brand to offer advice to wealthy customers.
A Bank of America spokesman said Friday, "We continue to be very committed to U.S. Trust" but would not give details about what the bank might sell.

Analysts said Bank of America could divest branches or the property and casualty businesses it got through the acquisition of Countrywide Financial. Insurance, both life and property and casualty, fell victim to the unraveling of the financial supermarket--Citi sold its insurance businesses long ago, and so did most other banks worldwide. In the third quarter, Bank of America generated $707 million in income from insurance overall.


New Source: money.cnn.com



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