If you read the NY Time article carefully, the $35B BAC need is already satisfied by the $45B it received in TARP. Hence, BAC should be able to return $10B in TARP based on this news if this is true and not the other way around.
Well, technically $45B is already priced in... That's why this is such good news. If people thought the Bank needed to convert $45B to common stock, well now we know they need to convert "only" $34B. Conversion is a worst case scenario though & with the improving economy, most of it will come from earnings.
I believe you are mixing apples and oranges - from reading the articles and reading the posts of others here who are more informed than myself - the TARP funds and 34 billion in capital requirements are two separate issues. If the TARP is used it will be dilutive to the stock.