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Bank of America Corp. (NYSE: BAC) today (Tuesday) offered to repay part of the $45 billion it received as a part of the Troubled Asset Relief Program (TARP) as well as end a loss-sharing deal with the U.S. government related to its acquisition of Merrill Lynch & Co., The Wall Street Journal reported, citing a person familiar with the plan.
BofA is suggesting it could start with $20 billion in additional aid it received in January, when the bank struggled to finish its acquisition of Merrill. The U.S. government is also looking for BofA to pay a minimum $500 million to halt a tentative pact that would have the government share its losses on certain assets.
"It's a sign the bank is moving beyond the crisis," Atlantic Equities LLP analyst Richard Staite told Bloomberg News. "This is positive news."
By repaying part of its loan, BofA would no longer be considered an "exceptional" aid recipient – a designation that put the lender under scrutiny by Congress and regulators, with its pay packages subject to review by the federal pay czar Kenneth Feinberg.
In January, the government guaranteed $118 billion of Bank of America assets, including commercial and real estate holdings and credit default swaps. Bank of America was required to absorb the first $10 billion of losses from its pool of assets, the "large majority" of which were assumed with the purchase of Merrill. BofA covered just 10% of any losses incurred beyond that point, and the U.S. Federal Reserve and the Federal Deposit Insurance Co. split what's left of the tab.
BofA is one of two larger banks that have not repaid any TARP funds; the other is Citigroup Inc. (NYSE: C), which got $50 billion in aid. If both were to repay their debts today (Wednesday), the government would net a profit of roughly $18 billion based on the share price of both companies. Earlier this week it was revealed that the United States turned a profit of $4 billion from eight banks that have fully repaid their federal loans.
News and Related Story Links:
- The Wall Street Journal:
BofA Seeks to Repay a Portion of Bailout
- Money Morning:
Bank of America Gets $138 Billion Bailout as Merrill Takeover Backfires
- Bloomberg News:
Bank of America May Repay U.S. Aid, End Loss-Sharing Accord
- Money Morning:
U.S. Turning Profit on TARP, but Big Loans Remain in Banks' Hands