Bank of America Corp is selling its remaining BlackRock Inc stake back to BlackRock for $2.5 billion, its latest step to prepare for new industry capital requirements.

The sale further chips away at the relationship between the world's largest asset manager and the No. 1 U.S. bank by assets, but a senior Bank of America official will remain on BlackRock's board.

For Bank of America, the deal raises cash that can be put to work expanding other businesses and prevents the bank from having to hold a large amount of capital against the shares, which would be required under the new Basel III capital rules.

This doesn't change the bank's position in the short-run, but you will see the difference when the new rules come into play, said Marty Mosby, a bank analyst with Guggenheim Securities LLC.

Mosby estimated the deal will likely add a $300 million pretax gain to the bank's second-quarter earnings. Analysts project BofA's net income will be about $3 billion in the quarter, according to Thomson Reuters I/B/E/S.

In the long-term, the share sale will release as much as $2.5 billion in capital when the new Basel III rules take effect, he said.

BlackRock will pay $187.65 per share, or $2.54 billion, for the 13.6 million Series B convertible preferred shares owned by Bank of America. The bank is getting a sweeter payday than when it sold an initial block of its BlackRock shares on the public market in November for $163 each.

Since the first share sale was announced on November 8, 2010, BlackRock's shares have risen 15 percent.

BofA acquired a stake in BlackRock as part of the Merrill Lynch deal in 2008.

BofA spokesman Jerry Dubrowski said the latest share sale is consistent with the bank's strategy to sell business units and investments that do not serve its main customers.

We determined we didn't need the equity investment in that partnership to continue the working relationship we have, Dubrowski said.

The deal also has some key benefits for BlackRock.

By buying back the shares, BlackRock can reduce its total share count without reducing the shares that trade publicly every day, known as the public float.

BlackRock, which went public in 1999, was added to the Standard & Poor's 500 Index in April after its public float finally exceeded the required 50 percent threshold.

The deal will likely increase BlackRock's earnings per share by about 3 percent, Nomura analyst Glenn Schorr wrote in a report. As a result, he raised his 2012 earnings estimate for BlackRock to $14.50 per share from $14.05.

Shares of BlackRock, which oversees $3.6 trillion in assets, rose 2.3 percent to $197.75 in afternoon trading on the New York Stock Exchange. Bank of America shares dropped 5 cents to $11.74.

This stock repurchase and our recent dividend increase (are) evidence (of) our continued commitment to enhancing shareholder value through effective use of our significant free cash flow, while maintaining our strong liquidity and capital position, BlackRock Chairman and Chief Executive Laurence Fink said in a statement.

Bank of America acquired the shares when it bought Merrill Lynch in 2008 amid the depths of the financial crisis. Merrill Lynch swapped its asset management business in 2006 for a 49.8 percent stake in BlackRock, worth about $9.4 billion at the time.

The deal does not sever all ties between the companies, BlackRock said, noting that Tom Montag, who heads Bank of America's Global Banking and Markets Group, will remain a member of BlackRock's board of directors.

The New York-based asset manager, whose clients include central banks and governments, will use available cash and $2 billion of commercial paper, medium-term and long-term debt to pay for the preferred shares.

(Reporting by Svea Herbst-Bayliss and Joe Rauch, editing by Maureen Bavdek, Dave Zimmerman and John Wallace)

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