Does Bank of America Have 9 Lives? Almost: It Has Government Backing

(MoneyWatch) 
Being a nationalized bank certainly has its share of drawbacks, but it also comes with some perks. Nowhere has this been more evident than in the performance of Bank of America this week. While the news has just kept getting worse, Bank of America's share price has continued rising higher.

Late last week, the firm dethroned its chairman Ken Lewis, amid shareholder fury over Lewis' deceitful statements to them in the Merrill Lynch deal last year. Monday, it was rumored that Bank of America would need to raise some $10 billion to meet the criteria necessary to pass government stress tests. While Bank of America denied that report, it neglected to mention that the actual figure was closer to $34 billion.

My BNET Finance colleague Marine Cole points out that subsequently, it's looking less and less likely that Bank of America will be able to pay back its share of the TARP funds.

The constant stream of bad news would have been enough to destabilize almost any other public company and send its share price tanking. After all, if Bank of America isn't able to pay back the money that it owes, it's not just earnings growth that hangs in the balance -- it's the future of the bank itself.

Understandably, some are pointing out that there seems to be no such thing as bad news in the world of Bank of America:

It seems strange that Bank of America is up more than any other major financial stock, more than 18% at this time. So let me get this straight, the company is found to have a huge capital shortfall and must raise capital which will more than likely heavily dilute existing shares, and the stock surges. At this point, I have no clue as to what could be construed as negative news for Bank of America right now. Amazing!

Meanwhile, Clusterstock's Joe Weisenthall chimes in with a fact that may have been overlooked:

It's not a bad week for Ken Lewis, though the real winner is the government, which just have done enough spinning and leaking to find a way to release bad stress test results without hurting bank stocks. That was a tough tight rope to walk and they pulled it off.

It's been pointed out in a number of places that the stress tests matter most to the government, which initiated them in the first place, and whose main priority is to re-stabilize the financial system. And it's strange how most of the results of the tests have been leaked before the initial announcement.

Indeed, the Obama Administration has a deluge of public relations resources at its disposal. It's not hard to imagine they would use some of these capabilities to make sure Thursday's official announcement passes as smoothly as possible. The argument is all the more compelling given the pretty direct role Federal Reserve officials are alleged to have played in the handling of the Merrill Lynch buy-out (although Bernanke denies that he asked Lewis to conceal anything from shareholders).

Either way, this type of freak event -- which only ends up making shareholders question why the stock is moving so much -- is as good an argument as any for banks to become fully-fledged public companies again as soon as possible. Otherwise, no matter what tests and measures are put in place, the net result is more questions than answers.