BoA Getting Additional Bailout Funds
From the WSJ:
The U.S. government has agreed to commit billions in additional aid to Bank of America Corp. to help the nation’s largest bank by assets close its acquisition of Merrill Lynch & Co., according to people familiar with the situation.
Discussions over these funds began in mid-December when Bank of America approached the Treasury Department. The bank, already the recipient of $25 billion in committed federal rescue funds, said that 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 capital from the $700 billion Troubled Asset Relief Program, according to the person familiar with the talks. The terms are still being finalized, this person said. 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, said one person familiar with the matter.
BoA bought the subprime lender Countrywide too, and this new infusion of money following the initial slug sounds abit like BoA going down the CitiBank path.
Tags: Bush's Fubar Economy
there stock is down to $10 today….not good
JEBUS H CHRIST!!
Barry Ritholtz at The Big Picture has a righteous rant over this new bit of business calling for heads of the the Board and CEO.
Buying Countrywide and Merrill Lynch? Honestly, how does Ken Lewis still have a job?
He bought them AFTER they were in the toilet. Pennies on the dollar. Personally, I think it was brilliant, unless he was more exposed to the mortgage market than he thought.
more than he thought geek. when he bought CW there is no way they saw 10% Unemployment coming, they thought that they caught the end of it I bet
People in the finance sector who didn’t see the disaster coming should not be rewarded. Why don’t we just nationalize part of the banking sector and get it over with, it would probably be cheaper. (Citi is in the toilet as well.)
Maybe he did think it was a good deal geek. So what? It was still a bonehead move – fire his ass.
Nope. All of those things were way undervalued. I have no vested interest in it either way, but I know that the people that buy when everyone else is yelling SELL! are the people that get the corner office.
Oh, and I think Jamie Diamond is going to end up the best positioned of them all.
Corner office or Janitor’s closet. It’s a roll of the dice.
Nope. All of those things were way undervalued
Dude,
You are nuts. If someone says my worthless shitpile should go for $100 and I sell it to you for $50 – you are not getting a good deal.
…If you think so, I have a worthless shitpile I’d like to show you.
Is the worthless shitpile hiding a pot of gold? If so, I’ll take it off your hands cheap. I know how hard it is to get the stink off of gold…
pot of gold?
We are talking COUNTRYWIDE man. If you look up worthless shitpile in the dictionary the second definition is Countrywide. Those mortgages are worthless.
No, the securities derived from those mortgages (leveraged to the hilt) are worthless. 95% of the mortgages themselves will be paid off.
Let me also say that the only reason that BofA is in such a strong position to get mo’ money is because their purchase of these worthless shitpiles may have softened the blow on the economy that would have happened if they had all failed.
It’s payback time, bitches!
…the securities derived from those mortgages (leveraged to the hilt) are worthless. 95% of the mortgages themselves will be paid off.
Geek nails it. This is the rebuttal to the wingers who want to blame the mortgage holders.
No, the securities derived from those mortgages (leveraged to the hilt) are worthless. 95% of the mortgages themselves will be paid off.
And the 50 million dollar question is what did Countrywide have left when BoA bought them? The good mortgages or the worthless derivatives? (Hint: Countrywide was a subprime lender)
BoA presented themselves as a strong bank that could absorb more of the industry and the pieces that they thought they could get for a song are ending up costing them way more than they thought. Meaning that they didn’t a) get a good look at the shitpile before they signed on the dotted line, or b) even they couldn’t value the shitpiles from Merrill and Countrywide.
Right now, there is money to be made by saying, “These shitpiles we bought are pretty stinky” so I expect that that will be the mantra. But at the end of this fiasco, BofA and JPM will look like friggin geniuses.
When they do, you can buy me a beer. And if either of them go bankrupt, I’ll let you butt in front of me in the soup line.
I have mortgage at CW. At the time I was was employed though 🙂 I had a750 fico and ever had a late payment. I was far from subprime.
*sigh*
Countrywide certainly wrote mortgages of all kinds, but their claim to fame was as a writer of subprime mortgages. I’d venture that they wouldn’t have gotten into the mess they got into if they hadn’t embraced and pushed the envelope on the risks.
Right now, there is money to be made by saying, “These shitpiles we bought are pretty stinky”
Right now, there is money to be made in getting taxpayers to hand over funds to protect you from the worst of the stinky stuff. And those taxpayers? If there is any money made, those taxpayers won’t be sharing in the largess. But you can bet your tax bill this year that taxpayers will be called on the soften the blow of the losses.
Cassandra- the point is whether or not BofA made a bad decision in buying them for a song. I am not making any judgments about who will or won’t benefit. I just think that it was a smart buy for BofA and will benefit them, corporately, in the future.
I would rather see the TARP money go to pay off mortgages or to offset the loss in property value of the homes, but that isn’t the point I’m making here.
If the market for beach homes were to tank to the point that I’m able to pick one up for $500, I’m buying the damn thing. If it has structural issues and sits in the middle of a mine field, fine. I’ll get more than $500 of value out of it in parts that are useful.
I understand your point LG — and to extend your example to include my point: If you buy a beach front house for $500 dollars and need to get government funds to fix it up (or take it apart), clear the minefield or to replenish the beach, you got a very good buy very much with the help of others who will never share in your good fortune.
Buying Countrywide was a huge risk for BoA, as was buying Merrill. If this is a thing that may end up being good for them in the long run, then they need to get there with their shareholders, not with taxpayers.
I think that they just got themselves into the “To big to fail” club…
I need to get into that club.
Oh, and to even further extend the analogy, what if the government simply gave me a low interest loan to fix the beach house? Or if fixing the beach house was going to lift the economy in the beach town?
I need to get into that club too.
If the government gives you a low interest loan, you will have to pay back the loan, but taxpayers are out the use of those funds for the life of that loan. And if low interested = less than market rate, then you are still getting something of a subsidy. There are limited ways that fixing a beach house lifts an economy other than yours.
But then, we could end the example altogether by assuming that you change your name to Buccini Pollin Group and the entire state starts throwing money at you by magic.
I have a shitpile of BofA stock right now so I am very vested in their survival 🙂 mfer’s
Bank of America issued both credit cards and mortgages to illegal aliens, specifically those without SSN numbers.
They did this in the face of a larger ground revolt that challenged the process. Now the tax payer is being ask to support BOA when BOA has done nothing but undermine this countries “Existing” immigration policy by allowing illegials to more firmly establish a foothold in this country. These are examples of worthless mortgages we are being ask to cover.
Let them eat cake.
LG wrote When they do, you can buy me a beer. And if either of them go bankrupt, I’ll let you butt in front of me in the soup line.
Classic.