It’s no coincidence that Bank of America Corp chose today to announce that it will pay $425 million to end a program to share losses on bad assets and derivatives with the United States.
As you may recall, yesterday Bank of America was in a show down with Congressman Edolphus Towns, who had demanded that bank release documents and information about bonuses and losses at Merrill Lynch by noon yesterday. The bank asked for a day’s extension, offering to bring the documents to a meeting scheduled for Tuesday between the Congressmen and its chief marketing officer. Towns declined to offer an extension.
Then Bank of America showed him up by calling his bluff: they told him he would have to wait until today. Towns was left seeming ineffectual, an ineffectual Washington suit.
No doubt Bank of America knew that it had this card up its sleeve for sometime. They knew they’d be going to Washington with the good news that taxpayers would no longer explicitly be on the line for declines in the value of a portfolio of $118 billion of assets Bank of America scooped up from the wreckage of Merrill Lynch. What’s more, they’d be offering the government hundreds of millions of dollars to pay for the guarantee.
They also knew that Towns had demanded that Bank of America stop attempting to get out paying for the guarantee by saying it was never actually signed into place. It was a technical argument by the bank that ignored the underlying reality that the market had given them the benefit of the guarantee once it was announced, and that taxpayers really would have been on the line if the bank had to call on the guarantee.
So now Towns can feel good about himself. He won a battle with Bank of America! And Bank of America has exited one more aspect of the explicit government support for its balance sheet.
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