Bank of America plans $3bn share issue

Bank of America is planning to issue new shares in exchange for existing preferred stock and debt that has lost value during the downturn this year.

The bank's latest quarterly filing said it was considering issuing up to $3bn of common stock in order to retire junior subordinated debt and preferred shares.

"The uncertainty in the market evidenced by, among other things, volatility in credit spread movements, makes it economically advantageous at this time to consider retirement of issued junior subordinated debt and preferred stock," BofA said in the filing.

The move has been done to reduce the interest the group pays on its debt.

It comes following a sharp fall in the bank's share price which is down more than 50% this year. But the lower market value of its debt enabled the bank to record a debt valuation adjustment of $1.7bn in the third quarter as part of a $4.5bn gain due to a "fair value option on structured liabilities".

M&G's Richard Woolnough is among those to have called into question such practices.

Bank of America's CEO Brian Moynihan said in August the bank "simply could not continue on a course of diluting our shareholders to raise capital".

BofA told Bloomberg the latest move was consistent with that statement because the exchange of stock would not increase its capital.