Bank of America Corp. (BAC) shareholders, your shares are now worth less than they were just two weeks ago.

Yesterday, the banking conglomerate announced that it sold 1.25 billion shares at an average price of $10.77.

The most obvious takeaway is that the sales were transacted at below market prices, or at least below the average closing price of the past 2 weeks. In other words, the buyers didn’t think that BAC shares were worth the current price of $11.25. That’s not good, but it gets worse.

Thanks to the secondary offering, existing shareholders now own less of BAC. To fully understand the implications, let’s look at the math.

As of April 30, Bank of America had 6.40 billion shares outstanding. Multiplying this number by the consensus earnings estimate of 44 cents per share gives us a projected net income figure of $2.816 billion.

The net income figure does not change, whether there is 1 share outstanding or if there are 10 billion shares outstanding. What does change, however, is what portion of income each shareholder is entitled to.

The secondary offering increases shares outstanding to 7.65 billion shares. Dividing this number into the net income figure of $2.816 results in earnings per share of 37 cents per share — a 15% decrease.

Remember, the net income pie has not change, just your slice of it. And your slice is now 15% less than what it was just 2 weeks ago.

Worse yet, BAC still remains far short of meeting the funding requirements required by the stress tests. None of this is good news for shareholders.
Zacks Investment Research

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