BofA Treasury Aid Totals $25 Billion; More to Come?

Unnamed sources out of Bank of America Corp. (BAC) spoke Wednesday to the Wall Street Journal regarding the banking giant’s possible need of a multi-billion-dollar infusion from the government to bolster it after absorbing Merrill Lynch & Co. on Jan. 1 when the merger officially kicked off. BofA was reportedly in discussions with the Treasury Department as early as mid-December 2008 regarding the aid, which — if finalized — would arrive on the heels of the last infusion of some $25 billion in TARP funds through the capital purchase program. The first stock purchase of $15 billion occurred on Oct. 28 and the second purchase of $10 billion — originally slated as a purchase of Merrill Lynch stock — was deferred pending the merger and later logged as a purchase of BofA stock on Jan. 9. The additional funds now being discussed would be a cushion for Merrill’s fourth-quarter losses, which exceeded expectations, sources told the Journal. People close to the issue also said had gone so far as to tell the government it wished to walk away from the Merrill deal as soon as the breadth of losses was apparent. In response to the reports, BofA stock fell 27 percent in early trading, according to a MarketWatch bulletin. It rebounded slightly and stood at less than 21 percent down for the day when this story was published in mid-day. BofA officials had no comment on the issue at the time this story was published. The news that BofA might be in trouble comes as increasing doubts regarding the future of Citigroup Inc. (C), which confirmed Tuesday it reached an agreement with Morgan Stanley (MS) about the joint venture of its retail brokerage business, Smith Barney, and the wealth management business operated by Morgan Stanley. But people close to the issue told the Journal that Citi’s restructuring plans go further than the joint venture, which is expected to close in the third quarter. The bank may soon downsize and shift the focus of its business to two key areas — possibly corporate wholesale banking and retail banking in select markets worldwide. The expected bloodletting may involve eliminating a third of Citi’s assets, is rumored to shutter consumer-finance operations and is expected to be announced Jan. 22 as Citi reports larger-than-expected losses in its fourth-quarter results, according to the Journal’s sources. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.