Bank of america jealous citi was getting all hank's attention
Jan 15, 2009 at 1:48 AM

The WSJ is reporting tonight that Bank of America is close to announcing a $20 billion infusion from the Treasury.  It appears that BofA approached Treasury in mid December because of larger than expected losses at Merrill Lynch.

According to the WSJ story, Lewis told the Treasury that he needed some help in order to close the deal for Merrill.  Something about Merrill's larger than expected fourth quarter losses, blah, blah, blah.

We call bullshit.  From the moment he agreed to take Thain and Merrill to bed, Lewis was looking for his move.  He wanted a taxpayer backstop but waited for things to get worse.  He was smart enough to know that a request for a big chunk of your money would not have been digested well on the same weekend that Lehman was left to sputter into bankruptcy.  So he waited.  Then Citi's near collapse at Thanksgiving showed him the government's new hand.  And she was pretty with a huge rack.  How's this sound for a deal: $20 billion plus a backstop for $300 billion, in exchange for less than $30 billion in preferreds and warrants. 

Then a few weeks later, Merrill's numbers were out and he had his chip. Fly to Washington on the corporate jet and inform the Treasury that, without assistance similar to Citi's deal, you won't be able to close the deal.  Taxpayer fleecing 101.  

Here's how it's being spun:

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 Jan. 1 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 amount and terms are still being finalized, this person said. Details are expected to be announced with Bank of America's fourth-quarter earnings, due out Tuesday.

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.

Both the Federal Reserve and the Federal Deposit Insurance Corp., alongside the Treasury, are involved in the negotiations, say people familiar with them. That suggests that the aid could take a similar form to the hand extended to Citigroup Inc. late last year.


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