Bank Of America To Get $20B More From Feds
Bank of America reached an agreement early Friday for an additional $20 billion in support from the government's emergency bailout fund, plus guarantees against losses on up to $118 billion in troubled assets.
The agreement was announced shortly after midnight Friday following marathon negotiations between the bank and federal officials.
It marked the latest effort by the Bush administration to bolster the banking system in the face of the worst financial crisis since the Great Depression.
The $20 billion injection of fresh capital will come from the government's $700 billion rescue fund and will be similar to assistance provided in November to another troubled bank, Citigroup.
Bank of America will use the money from the rescue fund to help it absorb losses at Merrill Lynch.
The loan guarantees will cover about $118 billion in loans and other holdings such as securities backed by residential and commercial real estate loans. The bulk of these holdings were obtained by Bank of America in its acquisition of Merrill Lynch, a deal which closed earlier this year.
The Treasury Department already has pledged the first half of the $700 billion bailout fund, which Congress approved on Oct. 3, to deal with the nation's financial crisis.
However, President Bush, on behalf of President-elect Barack Obama, asked Congress to release the second half of the bailout fund earlier this week and on Thursday the Senate voted 52-42 to turn aside an attempt by opponents to block the release of the remaining $350 billion from the bailout fund.
Before the new support package, Bank of America had received a total of $25 billion in capital injections from the Treasury bailout fund, called the Troubled Asset Relief Program, or TARP, including $10 billion for Merrill Lynch.
In a statement, Treasury said the new support was designed "to strengthen the financial system and protect U.S. taxpayers and the U.S. economy."
"It gets down to the cost of the acquisition of Merrill and the risks associated with the deal," said Gary Townsend, president of Maryland-based private investment group Hill-Townsend Capital. "They were obviously in contact and in discussion with the Treasury prior to the end of year close."
Even with the government aid, Bank of America's stock has been pummeled.
Shares of the Charlotte, N.C.-based bank are down more than 27 percent this year - dropping to their lowest level in 18 years - and lost $1.80, or 17.5 percent, to $8.40 in late afternoon trading Thursday after trading as low as $7.35 earlier in the session. Rival Citigroup's shares plunged 87 cents, or 19.5 percent, to $3.66 after falling as low as $3.36 earlier in the session.
Bank of America declined comment on the new aid package on Thursday. Some analysts are predicting the nation's biggest bank by assets will report a loss or lower-than-expected earnings for the fourth quarter. Its board has already halved the company's dividend and could slash the payout again. It had been expected to report its fourth quarter results next Tuesday, but the bank moved up the release to early Friday.
"We don't know how they are going to be," said Bert Ely, a banking industry consultant in Alexandria, Va. "The question is can they handle the recognition of the committed losses, however bad they are going to be, if they are there."
Analysts polled by Thomson Reuters, on average, expect Bank of America to earn 8 cents per share during the quarter and $1.15 per share for 2008.
Fears about the stability of the financial industry had gripped Wall Street in recent days, sending stocks plunging. Wall Street investors are worried about another round of losses from banks, which had been especially hard hit by the worst financial crisis since the 1930s.
Against that backdrop, the federal government has taken radical steps - including making capital injections in banks - to shore up the nation's shaky financial system and to try to get credit flowing more freely again.
Problems, however, have persisted. Federal Reserve Chairman Ben Bernanke earlier this week made a forceful case that the second $350 billion bailout installment was critically needed.
In the Citigroup rescue late last year, the bank received a fresh $20 billion capital infusion from Treasury's bailout fund - after earlier receiving $25 billion - as well as government backing of billions of dollars in risky assets held by the bank.
Specifically, Treasury and the Federal Deposit Insurance Corp. provided a guarantee against the possibility of losses on up to $306 billion of risky loans and securities backed by New York-based Citigroup's commercial and residential mortgages. Funds from the FDIC and $5 billion from the bailout money would be used for the guarantees.
© 2010 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The agreement was announced shortly after midnight Friday following marathon negotiations between the bank and federal officials.
It marked the latest effort by the Bush administration to bolster the banking system in the face of the worst financial crisis since the Great Depression.
The $20 billion injection of fresh capital will come from the government's $700 billion rescue fund and will be similar to assistance provided in November to another troubled bank, Citigroup.
Bank of America will use the money from the rescue fund to help it absorb losses at Merrill Lynch.
The loan guarantees will cover about $118 billion in loans and other holdings such as securities backed by residential and commercial real estate loans. The bulk of these holdings were obtained by Bank of America in its acquisition of Merrill Lynch, a deal which closed earlier this year.
The Treasury Department already has pledged the first half of the $700 billion bailout fund, which Congress approved on Oct. 3, to deal with the nation's financial crisis.
However, President Bush, on behalf of President-elect Barack Obama, asked Congress to release the second half of the bailout fund earlier this week and on Thursday the Senate voted 52-42 to turn aside an attempt by opponents to block the release of the remaining $350 billion from the bailout fund.
Before the new support package, Bank of America had received a total of $25 billion in capital injections from the Treasury bailout fund, called the Troubled Asset Relief Program, or TARP, including $10 billion for Merrill Lynch.
In a statement, Treasury said the new support was designed "to strengthen the financial system and protect U.S. taxpayers and the U.S. economy."
"It gets down to the cost of the acquisition of Merrill and the risks associated with the deal," said Gary Townsend, president of Maryland-based private investment group Hill-Townsend Capital. "They were obviously in contact and in discussion with the Treasury prior to the end of year close."
Even with the government aid, Bank of America's stock has been pummeled.
Shares of the Charlotte, N.C.-based bank are down more than 27 percent this year - dropping to their lowest level in 18 years - and lost $1.80, or 17.5 percent, to $8.40 in late afternoon trading Thursday after trading as low as $7.35 earlier in the session. Rival Citigroup's shares plunged 87 cents, or 19.5 percent, to $3.66 after falling as low as $3.36 earlier in the session.
Bank of America declined comment on the new aid package on Thursday. Some analysts are predicting the nation's biggest bank by assets will report a loss or lower-than-expected earnings for the fourth quarter. Its board has already halved the company's dividend and could slash the payout again. It had been expected to report its fourth quarter results next Tuesday, but the bank moved up the release to early Friday.
"We don't know how they are going to be," said Bert Ely, a banking industry consultant in Alexandria, Va. "The question is can they handle the recognition of the committed losses, however bad they are going to be, if they are there."
Analysts polled by Thomson Reuters, on average, expect Bank of America to earn 8 cents per share during the quarter and $1.15 per share for 2008.
Fears about the stability of the financial industry had gripped Wall Street in recent days, sending stocks plunging. Wall Street investors are worried about another round of losses from banks, which had been especially hard hit by the worst financial crisis since the 1930s.
Against that backdrop, the federal government has taken radical steps - including making capital injections in banks - to shore up the nation's shaky financial system and to try to get credit flowing more freely again.
Problems, however, have persisted. Federal Reserve Chairman Ben Bernanke earlier this week made a forceful case that the second $350 billion bailout installment was critically needed.
In the Citigroup rescue late last year, the bank received a fresh $20 billion capital infusion from Treasury's bailout fund - after earlier receiving $25 billion - as well as government backing of billions of dollars in risky assets held by the bank.
Specifically, Treasury and the Federal Deposit Insurance Corp. provided a guarantee against the possibility of losses on up to $306 billion of risky loans and securities backed by New York-based Citigroup's commercial and residential mortgages. Funds from the FDIC and $5 billion from the bailout money would be used for the guarantees.
Popular on MoneyWatch
- Bernanke sends stocks, bonds skittering
- Reverse cell phone lookup service is free and simple
- Bernanke holds the line on Fed monetary policy
- Why geniuses don't have jobs
- Microsoft slashes Surface prices to lure buyers
- Stock market falls as traders fear stimulus cuts
- Top 10 professional life coaching myths
- Service helps you use Twitter to find a job
Answer:Federalize the entire bank system under one government bank.
"Men by their constitutions are naturally divided into two parties: 1. Those who fear and distrust the people, and wish to draw all powers from them into the hands of the higher classes. 2. Those who identify themselves with the people, have confidence in them, cherish and consider them as the most honest and safe, although not the most wise depositary of the public interests. In every country these two parties exist, and in every one where they are free to think, speak, and write, they will declare themselves. Call them, therefore, Liberals and Serviles, Jacobins and Ultras, Whigs and Tories, Republicans and Federalists, Aristocrats and Democrats, or by whatever name you please, they are the same parties still and pursue the same object. The last one of Aristocrats and Democrats is the true one expressing the essence of all." ~ Thomas Jefferson to Henry Lee, 1824
Edgar Allan Poe wrote a story called "The Purloined Letter" of which the basic premise was that things are best hidden in plain sight. Well folks, this theft and fraud are being committed in plain sight. A lot of other close investors and friends of Madoff were in on this scam also...their money, from what I have heard, is safely in Israel. These victims are currently being set up to receive, directly or indirectly, taxpayer money through the TARP funds. Neat trick, huh?
Also look at the TARP funds that have already been distributed...a lot of close friends and associates of Madoff have already been allocated. When the "fake" prosecution of Madoff and his associates comes to an end do you really think anyone will pay other than the taxpayers...all he or they have to do is pull a "Ken Lay"....does anyone really believe that Ken Lay is dead?...GET REAL!!!
Also look at the entities that have received funding to do the fake work in Iraq...low and behold, a lot of them are close associates and friends of Madoff!! Check it out. The whole system is corrupt with these people put in place to pull off this fraud.
Wake up America! The bankers and corrupts, mostly with Israeli connections, are laughing at you and spitting in your faces!!!
The best bank around, and secretly what all the big banks fear, is your LOCAL credit union. You know, the place where you actually know people by name!
I''m cancelling my Bank of America checking account.