Bank of America may get more aid

Bank of America Corp, the biggest US bank by assets, may get more aid from the government to help absorb losses tied to this month's acquisition of Merrill Lynch & Co, three people familiar with the matter said.

Details are likely to be disclosed on Jan 20, the people said. That's when Bank of America may post its first quarterly loss in 17 years as it digests the purchases of Merrill Lynch and Countrywide Financial Corp The combined company has already received $25 billion from the US.

Bank of America, based in Charlotte, North Carolina, 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 government insisted the transaction go forward because its collapse would create new turmoil in the financial system, they said.

"Bank of America has all kinds of problems with its acquisitions," said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. "They've been so acquisitive, they find themselves with very little in tangible equity."

Bank of America's shares lost 66 percent last year and have declined another 30 percent since Chief Executive Officer Kenneth Lewis told employees on Jan 6 that 2008 performance may miss company expectations. They traded as low as $9.50 yesterday after-hours in New York, the first time they fell below $10 since 1992.

Lewis overreached by rescuing two money-losing companies in six months, including New York-based Merrill Lynch and Calabasas, California-based Countrywide, say analysts including Townsend and Paul Miller of Friedman Billings Ramsey Inc. Since becoming CEO in 2001, Lewis has spent $129 billion on acquisitions, including regional lenders FleetBoston Financial Corp and LaSalle Bank, credit-card issuer MBNA and investment manager US Trust Co.

Bank of America on Sept 15 agreed to buy Merrill Lynch, the world's largest securities firm, after a weekend of negotiations between Lewis and Merrill CEO John Thain. The $19.4 billion transaction came as Lehman Brothers Holdings Inc sank into bankruptcy, crippled by the frozen credit markets.

"Bank of America took some action to save the system," David Hendler, an analyst at CreditSights Inc, said on Wednesday in a telephone interview. "Long-term they are going to be a winner because they are going to get more government support and we are all going to pay for it."

Discussions about US aid started in mid-December and the bank completed the purchase Jan 1, based on assurances of US help, according to the people. 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.

"The bank must have decided that these Merrill issues would keep pounding on their earnings and on their dividend and on their stock price into 2010 or 2011, so they turned to the government," Hendler 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.

Merrill may have lost 50 cents a share in the fourth quarter, Credit Suisse analyst Susan Roth Katzke estimated last month, citing declines in real estate, leveraged loans and private equity.

Source:China Daily/Agencies