Bank of America in talks for more U.S. bailout funds

[Auburn85 438]

http://www.reuters.com/article/ousivMolt/i...0090115?sp=true

By Kevin Drawbaugh and Dan Wilchins

WASHINGTON/NEW YORK (Reuters) - Bank of America, the largest U.S. bank, is close to getting billions of dollars more in federal support from taxpayers, a person familiar with the matter said on Wednesday.

As Congress debated the future of the government's $700-billion financial markets rescue program, the source said that Bank of America has struggled to digest its January 1 buyout of former Wall Street brokerage giant Merrill Lynch & Co.

Merrill's fourth quarter losses exceeded expectations and spurred Bank of America in mid-December to start talking to the U.S. Treasury Department, which is managing the bailout.

U.S. Treasury Secretary Henry Paulson was driving the talks out of concern that Bank of America might be unable to complete the buyout, cutting Merrill adrift, the Wall Street Journal reported earlier on Wednesday.

The size and terms of any aid that could result are still being finalized, with details expected to be announced with Bank of America's fourth-quarter earnings, due out January 20.

In after-hours trading, Bank of America's shares dropped more than 5 percent to the lowest level since 1991. During Wednesday's trading session, Bank of America's shares dropped 4.2 percent to $10.20, down 28 percent so far this year.

Bank of America declined to comment. The White House declined to comment on the original report in the Wall Street Journal, as did a U.S. Treasury spokeswoman.

NEW URGENCY FOR TARP

The news came as President-elect Barack Obama pressured Congress to release a second installment of $350 billion for the bailout program known as the Troubled Asset Relief Program, or TARP. It was first approved in October.

Treasury has already committed $350 billion under the TARP, largely to shore up the balance sheets of large banks, but critics say the banking industry remains in desperate straits.

"The first round of TARP didn't give (Bank of America) the ability to build tangible equity, as well as fund Merrill Lynch, as well as handle loan losses and get rid of the problems on their balance sheets," said Christopher Marinac, an analyst at FIG Partners in Atlanta, Ga.

"The reality is that they need more common equity -- TARP may not be enough."

Bank of America and Merrill Lynch together received $25 billion from the TARP in October.

On Thursday, the U.S. House is expected to vote on a bill that would impose stricter terms and conditions on banks that want TARP money. A number of lawmakers who backed the initial TARP funding last year faced voter backlash in the November 4 congressional election.

As of Tuesday, the Treasury Department had paid out $271.7 billion from the initial $350 billion tranche of TARP, leaving a $78.3 billion balance in the bailout fund. All of the money, however, has been earmarked for various uses.

Of the $250 billion allocated to bank capital injections, Treasury had paid out $192.3 billion to 257 institutions, leaving $57.7 billion. The department is now sifting through funding requests from thousands of community banks, which have until February 13 to apply for TARP money.

DANGER SIGNS

The ominous news about Bank of America's need for more help came amid new danger signs for the financial sector.

Citigroup's share price tumbled below $5 a share on Wednesday, the lowest since a government rescue in November, on growing uncertainty about its future. More bad news may come on Friday, when analysts expect Citigroup to report a fifth straight quarter of multibillion-dollar losses.

Once the world's largest bank, Citigroup is expected to shrink by about one-third as it sheds unwanted businesses to survive. It has received $45 billion in taxpayer funds from the TARP, including $20 billion in November to avoid a collapse.

Merrill CEO John Thain negotiated the sale of the brokerage and investment bank, which had been rocked by billions of dollars in toxic assets, to Bank of America in mid-September.

It occurred on the same weekend that rival Lehman Brothers Holdings Inc filed for bankruptcy protection.

Some analysts saw the deal as a coup for Bank of America CEO Kenneth Lewis, who also used the bank's relative strength to buy Countrywide Financial, formerly the nation's largest mortgage lender, but the bank's stock has since slumped.

(Additional reporting by Jonathan Stempel in New York, and Matt Spetalnick and David Lawder in Washington; Editing by Bernard Orr)

[DKW 86 8,217]

This is why we dont need to be doing bailouts. We are bailing out their buyout.

Just insane...

[AUBURNJAC 53]

I would LOVE to see Bank of America FOLD!!!!!!!! The way they do business is complete and utter bull****! I literally got in a screaming match right in the middle of the bank with their branch manager in Nashville. I tried to close my account with them b/c of their very questionable practices, and they wouldn't let me!!!! The way I figure it, I was about 30 seconds from going to jail.

Please U.S. government, DO NOT BAIL THEM OUT!!!!!! IT'S THEIR OWN DAMN FAULT!!!!!!

[RunInRed 19,650]

"Too big to fail" comes to mind

[Auburn85 438]

http://www.marketwatch.com/news/story/bank...dist=TNMostRead

B. of A. needs more than $80 billion: FBR

Wells Fargo also will likely cut dividend to boost capital, analyst says

SAN FRANCISCO (MarketWatch) -- Bank of America Corp. needs more than $80 billion in new common equity capital to support the huge amount of assets on its balance sheet, an analyst said Tuesday.

Friedman, Billings, Ramsey's Paul Miller also said Wells Fargo & Co. (WFCWells Fargo & Company

WFC) probably will have to cut its dividend soon as that bank tries to boost capital.

Shares of Bank of America fell 16% to $6.01 during afternoon action on Tuesday, while Wells Fargo lost 17% to $15.45.

Bank of America (BAC bank of america corporation comBAC) reported a $1.79 billion fourth-quarter loss on Friday, and said its newly acquired brokerage unit, Merrill Lynch, lost more than $15 billion in the same period. See full story.

Charlotte, N.C.-based Bank of America enters 2009 with $61.7 billion of tangible common equity, supporting $2.4 trillion of tangible assets, Miller wrote in a note.

The bank probably needs to maintain a tangible equity ratio of 6% to 9%, he said. "It would take over $80 billion of new common equity to reach even the low end of the range, and we believe Bank of America simply is not generating sufficient capital internally in this environment to put a dent in this size capital hole."

The mortgage meltdown has spread into a global financial crisis, triggering a recession and surging unemployment in the United States. Continued job cuts in 2009 will likely cause more loan losses for banks, putting extra demands on their capital.

Wells Fargo has avoided some of the problems suffered by other banks, but the company acquired Wachovia late last year, exposing it to more potential losses.

"The significant strain on its tangible common equity of the Wachovia acquisition, as well as its newly acquired capital-markets businesses and $120 billion option ARM portfolio, should change the way that the market views Wells Fargo," FBR's Miller wrote.

Including Wachovia, Wells Fargo's tangible common equity represents 3.6% of tangible assets, while other measures of capital strength likely lagged those of rivals at the end of 2008, he estimated.

The bank pays out $5.65 billion in dividends each year and it probably won't earn that much in 2009, the analyst added.

"Wells Fargo will have to cut its dividend (if not this quarter, then sometime in the first half of 2009)," Miller said. "The current dividend reduces tangible common equity $5.65 billion annually, and Wells Fargo needs to rebuild its capital ratios."

Alistair Barr is a reporter for MarketWatch in San Francisco.

[RunInRed 19,650]

What most don't understand is that our entire banking system is going to have to recapitalized. This has not happened yet. What most people don't realize (well, the Street certainly does) is that the US banking system as we know it today is effectively insolvent because it starts with capital of about $1.4 Trillion and US financial credit crisis losses are estimated to reach in the neighborhood of $3.6 Trillion. Do the math.