Report: Bank of America Eyes Bailout Repayment

5218433Bank of America is looking to pay back a portion of its federal bailout money in an effort to relieve some regulatory pressure, according to a Wall Street Journal report ($) Tuesday.

At the same time, the U.S. is pushing the bank to pay up to $500 million to get it to abandon a tentative agreement that would have had the government absorb potential billions in losses.

According to the report, which cites sources familiar to the matter, both issues pertain to Bank of America's acquisition of Merrill Lynch in January – a transaction that required an extra $20 billion in taxpayer funds. The bank received $45 billion overall as part of the Troubled Asset Relief Program.

Bank of America wants to pay that $20 billion back, which would remove it from the list of "exceptional" aid recipients – a designation that brings increased government scrutiny, including reviews of executive compensation.

But the U.S. also agreed to absorb a significant portion of losses on $118 billion worth of assets held by BofA and Merrill. Bank of America would be responsible for the first $10 billion in losses, with the U.S. picking up the 90 percent of the remainder.

For this guarantee, Bank of America would have to give the Treasury $4 billion in preferred stock options, with an 8 percent dividend that would pay out around $320 million a year. The bank would also pay the Federal Reserve 0.2 percent interest on the $118 billion, amounting to $236 million a year.

The agreement called for the bank to pay an "appropriate amount" if it wished to end the arrangement, though the sum was never specified. There was also no formal contract signed between the bank and the government.

Now sources tell the paper that Bank of America is considering terminating the plan, and is softening its stance to the proposed $300 million to $500 million exit fee proposed by the Treasury – an amount it had previously expressed an unwillingness to pay.