Bank of America will Pay $425 Million to End Program on Bad Assets
Posted on | September 22, 2009 | No Comments
Bank of America will pay $425 million to end a program to share assets of bad assets and derivatives with the United States. This is Bank of America’s latest effort to remove itself from the current relationship with the U.S. government. The government agreed to share losses up to $118 billion when Bank of America acquired Merrill Lynch & Co.; an official agreement was never signed.
Analysts state that the major U.S. bank paid much more than they expected to exit the deal. This is likely the case because Bank of America wants to pay back the $45 billion in TARP funds as soon as possible. “BofA doesn’t care if this is $250 million or $425 million,” Jefferson Harralson, a Keefe, Bruyette & Woods Inc banking analyst said, “The real negotiation is the TARP repayment issue behind the scenes, and you can’t get there without this.”
Ken Lewis has stated many times that he wants to pay back Troubled Assetes Relief Program funds as quickly as possible but many banking analysts feel that PNC Financial Services Group is in a much better position to pay back TARP funds first. Since February, Lewis has been adamant about the fact that they were going to pay back all TARP funds by the end of 2010.
Also part of the agreement is an 8% divided on $4 billion in preferred shares it would have given to the government; this equals approximately $320 million a year. Bank of America was expected to give the government warrants as well. The warrants are estimated to have been worth $331 million. The current agreement will reduce Bank of America’s losses from $118 billion to $20 billion.
This deal should be looked at as extremely positive because taxpayers will be saving $425 million on the deal and Bank of America “was able to move ahead without the extraordinary assistance that the government was willing to provide,” noted a Treasury spokesman.
Please make sure to return to Subprime Blogger for all your mortgage and financial news. To stay up to date on the current state of finances make sure to bookmark the current news category below. We offer information on everything from getting a lower mortgage rate to increasing your credit score.
Author: Jesse Wojdylo
Comments
Leave a Reply