Bank of America will receive $20 billion in fresh capital and guarantees for $118 billion worth of risky assets to help it recover after the acquisition of Merrill Lynch, the U.S. Department of the Treasury announced on Friday.
$20 billion will be invested in BofA from the government’s Troubled Assets Relief Program (TARP) in exchange for preferred shares with an 8% dividend, according to a joint statement from the department and the Federal Deposit Insurance Corporation (FDIC). Additional protection against potential extraordinary losses will be provided for approximately $118 billion worth of loans, securities backed by commercial and mortgage loans, and other similar assets.
Bank of America has already received a $25 billion capital injection from TARP, a U.S. government fund that helped rescue primarily banks affected by financial turmoil caused by the collapse of the real estate market. This included $10 billion for the acquisition of the brokerage firm Merrill Lynch, which BofA purchased in a deal finalized on January 1. In return, the bank must adhere to strict limits on salaries and compensation for its executives and implement a mortgage modification program.
"The goal of this program is to promote the stability of financial markets, thereby strengthening the economy and protecting American jobs, savings, and retirement security," the department emphasizes. The program was announced just a few hours before the bank’s fourth-quarter earnings report was released. (H)
