Bank of America Corp., the biggest U.S. bank by assets, may get more aid from the U.S. government to help absorb losses tied to this month?s purchase of Merrill Lynch & Co., three people familiar with the matter said.
Bank of America told regulators in December the takeover might be abandoned because of Merrill?s worse-than-expected results, said the people, who declined to be identified because the talks are private. The U.S. insisted the transaction go forward because the deal?s collapse would have created new turmoil in the financial system, they said.
The talks may add to speculation that Bank of America overreached by rescuing two money-losing companies in six months, including New York-based Merrill Lynch and Calabasas, California- based Countrywide Financial Corp. The combined company already received $25 billion from the U.S. The new aid package is designed to ensure the Merrill Lynch deal gets done, not to save Bank of America from collapse, one person said.
Bank of America on Sept. 15 agreed to buy Merrill Lynch, the world?s largest securities firm, after a weekend of negotiations. The $19.4 billion transaction came as Lehman Brothers Holdings Inc. sank into bankruptcy, crippled by the frozen credit markets.
Discussions about U.S. aid started in mid-December and the bank completed the purchase Jan. 1 based on assurances of U.S. help, according to the people. Details are likely to be released when the bank reports results on Jan. 20, the people said.
The Treasury may decide to absorb some losses on Merrill?s assets and cap the bank?s liability, with terms still being discussed, the people said.
Scott Silvestri, a spokesman for Bank of America, and Brookly McLaughlin, a Treasury spokeswoman, declined to comment.
Countrywide Purchase
The Merrill purchase followed Bank of America?s July acquisition of Countrywide, the largest U.S. home lender. That transaction also appears to be causing losses at Bank of America because of the declining value of U.S. home prices, said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland.
?Bank of America has all kinds of problems with its acquisitions,? Townsend said. ?The problem with Bank of America is that they?ve been so acquisitive, they find themselves with very little in tangible equity.?
U.S. Representative Mel Watt, a Democrat from Charlotte who is on the House Financial Services Committee, said he didn?t know of any pending government support for Bank of America from the Troubled Asset Relief Program.
?I was under the impression that the Treasury was out of the first part of the TARP money and there wasn?t any more to give out,? Watt said in a telephone interview. ?They aren?t being very transparent in who they are giving money to.?
While departing Treasury Secretary Henry Paulson has allocated all the first half of the financial-rescue fund, at least $57 billion has still to be disbursed, leaving the department some room for emergency rescues. President George W. Bush notified Congress Jan. 12 of the intent to use the next $350 billion of the TARP money, triggering a 15-day period in which lawmakers can object.
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