Goldman, BOA sell US$7b of debt after posting profits

New York

GOLDMAN Sachs Group Inc and Bank of America Corp tapped capital markets Thursday after posting above-forecast profits as banks look to boost reserves to meet regulatory requirements.

Goldman Sachs, which posted its highest earnings per share in more than five years, sold US$2 billion of perpetual preferred securities that can be called after five years with a coupon of 5.375 per cent, according to data compiled by Bloomberg.

Bank of America, the second-largest US lender by assets, sold US$5 billion in debt after expanding its offering to three parts from two, including US$2.5 billion of 10-year subordinated notes that yielded 2.1 percentage points more than comparable government debt, Bloomberg data show.

The two banks, which won approval from the Federal Reserve in March to return cash to shareholders, are among financial institutions that have been issuing preferred securities and debt amid efforts to meet new capital rules enacted after the financial crisis. The infusions will improve Goldman Sachs's leverage ratios and bolster Bank of America's tier 2 capital levels, according to Pri de Silva, senior banking analyst at CreditSights Inc.

"The banking system is stronger than it has been for a long time and their bonds - especially lower in the capital structure - offer a lot more yield than you may get otherwise for the quality," said Scott Carmack, a money manager at Leader Capital Corp, which oversees US$1.5 billion in fixed-income assets.

"In an environment where yield is so difficult to come by this debt represents some of the best risk-reward out there."

Bank of America also sold US$2 billion of five-year senior notes at one percentage point more than comparable Treasury yields and US$500 million of 30-year subordinated debt yielding 2.2 percentage points more than Treasuries, Bloomberg data show.

Goldman's sale continues a trend of banks issuing preferred securities to meet new capital rules enacted after the financial crisis that treat the securities as equity on banks' balance sheets. Perpetual securities pay interest like bonds but typically have higher yields to compensate investors for the securities having no fixed maturity date.

Bank of America and Goldman Sachs have each increased their equity by two-thirds since the financial crisis as they retained more earnings to satisfy regulators' demands for higher capital levels, according to data compiled by Bloomberg.

"Banks have steadily improved their credit and earnings profiles to the point where they've moved from safety and soundness to complying with regulatory requirements in a cost- effective matter," Mr de Silva of CreditSights said.

Goldman's net income surged 40 per cent to US$2.84 billion, or US$5.94 a share, from US$2.03 billion, or US$4.02, a year earlier, the New York-based company said on Thursday in a statement. That was higher than all 26 estimates in a Bloomberg survey of analysts.

Bank of America Corp posted profit of US$3.36 billion for the first quarter as expenses declined. Net income was 27 cents a share, compared with a loss of US$276 million, or five cents a share, a year earlier, according to a statement on Wednesday from the Charlotte, North Carolina-based firm. Bloomberg