Bank of America plans to repay $45bn to US Treasury

Bank of America plans to repay the entire $45bn (£27bn) it owes the US Treasury as it aims to recapitalise its balance sheet and move out from under the government’s control.

The unexpected move, which comes just four weeks before chief executive Ken Lewis is due to retire, leaves Citigroup as the only major US bank still in hock to the federal government.

The plan to repay the funds – which will eventually free the banking conglomerate from the Obama administration’s stringent compensation rules – is understood to be the result of months of at-times tense discussions with both the Federal Reserve and the US Treasury.

BoA intends to use $26.2bn of excess liquidity on its balance sheet and raise an additional $18.8bn from investors in order to repay the funds, which came from the Treasury’s $700bn Troubled Assets Relief Programme (TARP).

In addition, BoA has agreed to raise up to increase its equity by $4bn through asset sales by June 2010 to bolster its capital position.

The bank originally took on $25bn in TARP capital in October 2008, followed by a further $20bn in January of this year after buying Merrill Lynch.

The development allows Mr Lewis, who agreed to fall on his sword following controversy surrounding the Merrill acquisition, to retire with some form of satisfaction.

It also allows the board - which has been searching for a replacement since Mr Lewis resigned in September – to be able to offer a competitive pay package to whoever his successor might be.