Deal nears on aid for Bank of America, reports say
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Investors may finally get some clarity on the fates of Bank of America Corp. and Citigroup Inc. on Friday morning, when both companies will report fourth-quarter earnings.
Late Thursday, news reports said Bank of America was in line for at least $15 billion more in government money to bolster the bank’s capital, and that the government would backstop at least $100 billion of the bank’s loans and other assets.
The Senate today approved the release of funds for the second half of the Treasury’s $700-billion financial-system bailout plan, known as the Troubled Asset Relief Program, or TARP.
From Reuters:
Funds for Bank of America would come from the Treasury’s TARP and supplement a prior $25-billion infusion, a financial policy source familiar with the talks said. President Bush and President-elect Barack Obama have signed off on aid for the largest U.S. bank, which is expected to include government [loan] guarantees, the source said. Bank of America sought the aid to absorb growing credit losses at Merrill Lynch, which it bought on Jan. 1. CNBC estimated the guarantee at $100 billion to $200 billion. Both Bank of America and Treasury declined to comment.
Both Bank of America and Citigroup moved up their reporting dates for earnings as fresh rumors swirled on Wall Street this week about their financial health.
The companies’ shares plummeted Thursday on talk that the government might nationalize one or both of the banks this weekend to keep them solvent. The stocks pulled up from their lows but still finished down sharply.
Citigroup sank 70 cents, or 15%, to $3.83; Bank of America slumped $1.88, or 18%, to $8.32.
Even if investors assume that full nationalization -- majority government ownership -- won’t be the outcome, any additional federal aid could mean more restrictions on the banks, to shareholders’ detriment.
One big question is whether Bank of America would be required to cut its dividend payout, now an annualized $1.28 a share. The bank slashed its dividend in half in October, citing mounting loan losses.
-- Tom Petruno