Bailout Buffet: Is Bank of America Ready For More?

(MoneyWatch)  Now that Citigroup has gobbled up a second helping of taxpayer dollars, there's growing speculation that rival Bank of America is next in line for another bailout meal.

At the time of Citigroup's new deal, President George Bush told the American people that more government-backed bank rescues were likely to occur despite the recent infusion of nearly $250 billion in the nation's biggest banks.

Certainly BofA is on the short list of probable second-round candidates. The banking giant has its share of toxic liabilities having acquired two damaged properties: Mortgage lender Countrywide Financial, with nearly $250 billion in troubled home loans, and ailing retail brokerage house Merrill Lynch with its sorry balance sheet.

Now adding to BofA's woes: The recently-acquired LaSalle National Bank, considered a healthy expansion play, is showing signs of having an infected commercial loan portfolio. At LaSalle's two banks, loans no longer accruing interest or at least 90 days behind on payments, totaled $2.32 billion, or 4.2% of the $55.0 billion in total loans, according to industry data cited this week in Crain's Chicago Business.
While the numbers are relatively small, the more troubling aspect is that BofA's commercial loans are ailing.

In 2007, BofA CEO Kenneth Lewis doled out $21 billion cash for LaSalle after waging a hard-fought battle with competitors to acquire the franchise, which has a strong presence throughout Illinois, Michigan and other Midwest states. At the time, the purchase was considered a shrewd way for Charlotte-based BofA to enter the Midwest in one swoop and expand its coast-to-coast consumer banking network.

Investors are worried. BofA stock lost about 50 percent of its value during November, only to rebound slightly after the Citigroup bailout rallied the stock market.

BofA and bank regulators realize it all comes down to the mega-bank's capital reserves. Presently, BofA's all-important Tier 1 Capital level is slightly above 7 percent. But dipping below that point can set off regulatory alarm bells and spark another round of government intervention.

Should it again belly up to the government table, BofA will be just another in a line of major institution going back for a fresh helping. In addition to Citigroup, insurance giant AIG has enjoyed a second round, too.
And as this banking and economic crisis deepens, more troubled financial institutions will be taking a page out of Charles Dickens' "Oliver Twist" by approaching the U.S. Treasury with this famous literary line: "Please sir, I want some more."