Bank of America's shares fell another 7 percent by mid-day today, following a punishing 26 percent decline yesterday.
Today's decline follows the bank's announcement last night that its $10 billion capital raise, which was announced Monday, will be at a steep discount to Monday's share price. The bank priced the capital raise at $22 per share – about where it was trading at mid-day today, but $10 below its Monday closing price.
Bank of America rushed out earnings after the markets closed on Monday, two weeks ahead of schedule. The bank's third-quarter profits fell 68 percent from the year before, as defaults spread to almost all areas of consumer lending. Analysts believe it wanted to announce its capital raise before any peers flood the market with the same intent.
The bank also said Monday it plans to slash its dividend payout. The moves are intended to shore up capital in a turbulent market, but they also hurt shareholders for the short term. Analysts noted Tuesday that the bank will also need extra cash to pay for costs related to buying Merrill Lynch.
The dividend cut, from 64 cents to 32 cents, is a sharp departure from the previous course of Bank of America, which bragged earlier this year that it had raised the dividend for 30 straight years.
Howard Silverblatt, senior index analyst at Standard & Poor's, noted that before Monday's announcement, Bank of America had paid the second-highest dividend of all the S&P 500 companies, behind only General Electric. Now, it will fall to No. 5.
“Obviously there have been people who were holding that stock for its dividend,” said James Early, an analyst at The Motley Fool. “So they're going to sell and get out.”
Bank of America also said Monday that it hopes to close its purchase of Merrill Lynch earlier than first announced – by the end of this year, instead of by the end of March.
The bank also said it will assume the $21 billion in outstanding debt of Countrywide Financial, the California mortgage lender it purchased on July 1.
That was good news for Countrywide's bondholders, who had fretted that Bank of America would leave them in the cold. In an April regulatory filing, the bank had said there was “no assurance that any of such debt would be redeemed, assumed or guaranteed.”