(Adds details of preferred stock downgrade, updates share price, adds byline)
By Elinor Comlay
NEW YORK, Feb 6 (Reuters) - Bank of America Corp (BAC.N), whose share price fell to a 25-year low this week, does not need more money from the U.S. government and does not expect to be nationalized, Chief Executive Kenneth Lewis said on Friday.
Bank of America shares, which hit a low of $3.77 Thursday on mounting concern the bank may need more government aid, surged on Lewis’ comments and were up 25 percent. The rise came despite rating agency Fitch downgrading the bank’s preferred stock to “junk” status earlier in the day.
The largest U.S. bank needed government help to complete its acquisition of Merrill Lynch & Co on Jan. 1, following rising mortgage and loan losses at Merrill.
In an interview with CNBC, Lewis tried to reassure investors about the bank’s capital position and the lingering nationalization question. He said he has talked to government officials, members of Congress and regulators and that nationalization had not even been “hinted.”
Asked if the bank would need more money from the government, Lewis replied, “No. Categorically I can say no.”
Bank of America has received $45 billion from the government’s Troubled Asset Relief Program, and the government is also sharing in possible losses on $118 billion of troubled assets at the bank.
Lewis, 61, told CNBC that the bank hopes to repay the government within three years and is focused on paying back the funds “as soon as humanly possible.”
Bank of America agreed to buy Merrill Lynch over the course of a weekend in September as Lehman Brothers Holdings Inc melted down. Lewis defended his swift decision on Merrill.
“There were others that wanted to make investments in Merrill during that weekend,” he said.
Lewis said Bank of America had a good January, helped by a boom in mortgage refinancings and an increase in customer trading flows.
But he cautioned that the economic outlook is not likely to improve until the second half of the year, if not later, and said unemployment could rise above 8 percent.
The government reported on Friday that the jobless rate rose to 7.6 percent in January.
Bank of America posted its first quarterly loss in 17 years in the 2008 fourth quarter and has also been struggling to retain staff following the acquisition of Merrill Lynch.
Lewis expressed regret over the departure of John Thain, Merrill’s former chief executive, who was ousted as head of Bank of America’s global banking, securities and wealth management business on Jan. 22.
“I’m sorry it happened ... and I wish John the very best,” Lewis told CNBC.
Merrill’s wealth management business, which Lewis described in September as the “crown jewel” of the acquisition, was also hit by the departure of Bob McCann, head of the 16,850-strong retail brokerage business.
Lewis said he has been talking to Merrill’s financial advisers in town hall meetings and he believes McCann’s successor, Daniel Sontag, has a “wonderful following” among the brokers.
Fitch Ratings lowered Bank of America’s preferred shares to below-investment-grade status, cutting the ratings three notches to “BB,” it’s second-highest “junk” grade, from “BBB.”
Bank of America shares were up $1.25 to $6.09 in afternoon trading on the New York Stock Exchange. (Reporting by Elinor Comlay; editing by John Wallace)