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Federal Reserve Asks Bank Of America For Contingency Plans In Case Of Continued Failure



U.S. regulators have pushed Bank of America Corp. to show what measures it could take if conditions worsen for the Charlotte, N.C., lender, according to people familiar with the situation.

Executives of the bank recently responded to the unusual request from the Federal Reserve with a list of options that includes the issuance of a separate class of shares tied to the performance of its Merrill Lynch securities unit, these people said. Bank of America purchased Merrill Lynch in 2009, and it has become the bank's most profitable division.

Chief Executive Brian Moynihan isn’t expected to pull the trigger soon, if ever, on the creation of a so-called Merrill Lynch tracking stock. Such a move would raise money from investors but could be viewed as counter to Mr. Moynihan’s strategy of knitting together the disparate parts of the franchise into a cohesive whole. Its inclusion on the list as a theoretical option shows the bank is considering all possibilities as it wrestles with an array of problems weighing down its shares….

The Fed’s call for more documentation about what the bank might do in more-extreme circumstances was a response to uncertainty about a U.S. economic recovery and a downward swing in Bank of America’s share price earlier this year, one of these people said. It was a one-time request, although the Fed has done the same with other firms in the past.

Bank of America did the analysis at the Fed’s request in late July and early August and then provided the Fed with its menu of options, said people familiar with the situation. Some items, such as the tracking stock, were more theoretical than others.

Mr. Moynihan isn’t giving the tracking stock serious consideration at this point, said a person familiar with the situation, but he included it on the list to show the company has multiple levers to pull.


More on the Merrill Lynch tracking stock from the WSJ...


In a list sent to the Federal Reserve of potential measures the bank could take should its situation worsen, BofA included the idea of a tracking stock for Merrill Lynch, according to a Wall Street Journal article. The trouble is such a move wouldn't necessarily signal strength. If anything, investors might interpret it as a sign of desperation.

For starters, tracking stocks, which typically don't confer ownership or voting rights on holders, have a fairly dismal history. They conjure images of dot.com days, when the instruments came into vogue.

Then there is the idea that a tracking stock for Merrill, which BofA purchased in early 2009, would really make investors ascribe it more value than BofA overall is currently getting credit for.

That is a stretch. If anything, a tracking stock would call into question whether the business is being fully integrated into BofA. It also could stoke speculation of a breakup. Investors don't foresee that, and the prospect of it would cause worry.


Here's the correct solution to the Bank of America death spiral:

Chris Whalen Recommends Chapter 11 Bankruptcy For Bank Of America: Default And Liquidation Under Dodd-Frank



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Reader Comments (5)

NEW YORK (MarketWatch) — Shares of top U.S. banks fell in the range of 3% or more Friday, diving on word that the government plans to sue several industry heavyweights over their mortgage dealings during the housing boom of the early 2000s.

Sep 2, 2011 at 12:12 PM | Registered CommenterDailyBail
Simply put, banking is government, and government is banking.

Finally, and more importantly, the threat of tens of billions of dollars in potential penalties will create an overhang for the U.S. banking system. It’s this industry that Congress and the White House have urged to provide credit to lead the nation out of recession, create jobs and support the housing market.

So, as much as it may satisfy some in Washington and on Main Street to go after the big banks, it doesn’t change the fact that their interests are aligned. Any settlement will potentially be a self-inflicted wound to the housing market and the economy.


Weidner is confused. Better to punish the bad actors and allow those who didn't commit fraud to take their place.
Sep 2, 2011 at 12:13 PM | Registered CommenterDailyBail
Notice where Bank of America is headquartered. Despite all of the nonsense out there, every company that moved to teh South has regretted it. Most have ended up moving again, overseas or to Mexico. Face it, the work ethic is not there. There is a reason for the stereotype of the lazy Southerner. I have had to go to the South to try to straighten up messes in manufacturing plants there. Some of them near Charlotte. Anyone who has flown through or into the Charlotte airport has seen Southern work ethic, intelligence and efficiency in action. It is the worst in the country to fly through. Everything moves at Southern pace. Bank of America is an icon of the new South, lettign bullshit and superficial charm substitute for integrity, work effort and common sense. The other banks are crooks and need to be jailed. B of A is in a special category of incompetent crooks. The South shall rise again, Suh.
Sep 2, 2011 at 1:03 PM | Unregistered CommenterHarry Johnson
BoA is taking our house on sep 12, they wouldnt lower down our mortgage rate from 3000 a month. We have not made any payments for 2 years and now they added all that to what we owe comes down to more than 500,000. The house is not even worth 300,000. You get no land to even grow a tree. I hate you BoA i hope all of ur banks blow up with all ur execs n presidents. You fucked too many good families yet us tax payers bailed all of you. All of you deserve the death penalty if i was in charge.
Sep 2, 2011 at 2:29 PM | Unregistered CommenterMegadeth

Why is it that Bank of America has to answer to the "FED" and not the US government and hence the people? Last time I looked the "FED" was just a another private banking cartel with lots of foreign owners busy ripping off the American people and debasing the government.
Sep 2, 2011 at 9:13 PM | Unregistered CommenterDDearborn

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