Page last updated at 23:52 GMT, Thursday, 3 December 2009

Bank of America to repay bail-out

Bank of America billboard in Times Square
Bank of America had been seen as one of the strongest US banks

Bank of America says it plans to repay its $45bn (£27bn) US government bail-out and raise extra capital.

It received the loans during the credit crisis last year and after the purchase of Merrill Lynch.

The move would allow Bank of America to free itself from government restrictions on executive pay that were a stipulation of granting the funds.

That will help the bank in its search to find a new chief executive after Ken Lewis retires at the end of the year.

The restrictions on executive pay have reportedly been hampering the search.

Bank of America said it had sold $19.3bn in securities on Thursday evening, which it will use to pay off part of the debt. The total value was higher than the $18.8bn expected.

Before the sale Bank of America had also planned to use $26.2bn in available cash to make up the difference.

Bank of America spokesman Bob Stickler said repaying the loan would removes "the stigma that we've had as a company".

"We become more attractive to a CEO [chief executive] candidate. Whether that means we get somebody external is impossible to say," he added.

Loss making

It removes some overhang so hopefully a CEO can come in with a clean slate
Alan Villalon, First American Funds

Analysts said the loan was being repaid much earlier than anticipated.

Last month, the bank reported a $1bn net loss for the three months from July to September, which was worse than had been expected.

The figure compares with a net profit of $3.2bn in the previous quarter and $1.2bn in the same period of last year.

Search for a successor

Bank of America agreed to buy Merrill in September 2008 in a deal worth $50bn - a decision for which Mr Lewis later drew much criticism.

As the crisis in the financial sector deepened, the bank subsequently needed $25bn in capital injections from the government's Troubled Assets Relief Program, known as Tarp.

At the start of this year, it then required a further $20bn.

US lawmakers have accused the Treasury and the Federal Reserve of "putting a gun to the head" of Mr Lewis over the Merrill deal, but Mr Lewis has denied that this was the case.

In September this year, it was announced that Mr Lewis, who had led the company since 2001, would retire from Bank of America at the end of the year. Last month, it was announced that he would receive no salary or bonus for 2009.

Bob Stickler from the bank said that a decision on Mr Lewis' successor was expected "in the near future".

Alan Villalon, senior research analyst at First American Funds, said the bank's decision to repay the government loans might be a signal that the bank is focused on attracting an external candidate.

"It removes some overhang so hopefully a CEO can come in with a clean slate," he said.

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The EconomistBank of America's TARP repayment: Ken's last act - 2 hrs ago
Philadelphia Inquirer Bank of America to pay back $45B of TARP - 5 hrs ago
Telegraph BofA's $45 bln repayment clears way for new CEO - 12 hrs ago Bank of America to repay US$45bil bailout funds in next few days - 12 hrs ago Bank of America can repay $45bn - 15 hrs ago
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