It’s already taken $25 billion from the TARP, but it apparently needs more. Bank of America (BAC) is set to receive yet another cash injection from the government, says WSJ, in order to help it absorb losses associated with the Merrill deal:
The discussion began in mid-December when Bank of America, already the recipient of $25 billion in federal rescue funds, told the U.S. Treasury Department it was unlikely to complete its purchase of the ailing Wall Street securities firm because of Merrill’s larger-than-expected losses in the fourth quarter, according to a person familiar with the talks.
Treasury, concerned the deal’s failure could affect the stability of U.S. financial markets, agreed to work with the Charlotte, N.C. lender on the “formulation of a plan” that includes new government capital. The terms are still being finalised, this person said, and details are expected to be announced with Bank of America’s fourth-quarter earnings, due out Jan. 20.
Any possible arrangement might protect Bank of America from losses on Merrill’s bad assets. There would be a cap on the amount of losses the bank would have to absorb with the federal government being on the hook for the remainder, according to one person familiar with the matter.
By capping BofA’s losses, the bank is essentially getting a deal like JPM got when it bought Bear Stearns — but retroactively. Also, the bank’s threat to the feds that it couldn’t have completed the Merrill deal without some fresh help is a revelation here.
The timing of the the announcement, on January 20th, fits with our speculation that a fresh round of new bank injections could be coming shortly.