Bank of America Goes Down

On the same frantic weekend as Lehman Brothers lost everything, Bank of America co-conspired with the treasury ripoff of $50 billion from American taxpayers. It was on that weekend that John Thain wiggled his way into bank of America's bosom.  The prevailing thought of the day was that Thain executed a masterpiece of negotiations, but it appears now like anything else on Wall Street it may be his Goldman Sachs pedigree and implied insider connections which served him best.

Knowing that investors were worried about Merrill, John A. Thain, its chief executive and an alumnus of Goldman Sachs and the New York Stock Exchange, and Kenneth D. Lewis, Bank of America’s chief executive, began negotiations. One person briefed on the negotiations said Bank of America had approached Merrill earlier in the summer but Mr. Thain had rebuffed the offer. Now, prompted by the reality that a Lehman bankruptcy would ripple through Wall Street and further cripple Merrill Lynch, the two parties proceeded with discussions.

Who could have known at the time that those discussions included provisions to disguise the theft from the treasury to Merrill Lynch as a merger or buyout of Merrill Lynch by Bank of America, who could not know it now. Bank of America bought Merrill Lynch for $50 billion in September, but the deal was not finalized until January 1, 2009 by which time Merrill's meltdown had significantly heated up, any CEO worth his salt would have dumped the deal, but Lewis clung to it.

Mr. Lewis said that as Merrill’s fourth-quarter losses mounted, he did re-evaluate whether he should close the deal and whether he could renegotiate the price for Merrill. But, he said, regulators implored him to complete the transaction and said they would provide support.

“The government was firmly of the view that terminating or delaying the closing of the transaction could lead to significant concerns and could result in significant systemic concerns,” Mr. Lewis said. “We did think we were doing the right thing for the country.”

Oh, he did it for the country, silly me who'd have thought he was so patriotic! So let's see if we get can this straight; Lewis did it for the country, but then made the country pay for it.

In the conference call, Bank of America executives also discussed the government assistance that was announced overnight to help them complete the merger with Merrill.

Two weeks after closing its purchase of Merrill Lynch at the urging of federal regulators, the government cemented a deal at midnight Thursday (January 16, 2009) to supply Bank of America with a fresh $20 billion capital injection and absorb as much as $98.2 billion in losses on toxic assets, according to people involved in the transaction.

So, Bank of America blackmailed the taxpayer for another $20 billion, pushed up its reporting date, then promptly reported  its first loss since 1991,  which did not include the dead weight of $15 billion of unexpected Merrill Lynch losses.

Bank of America Corp. swung to a fourth-quarter loss on Friday after accepting $20 billion in aid from the U.S. government to help it absorb troubled Merrill Lynch & Co.'s piles of souring loan-backed securities.

The Charlotte, N.C., banking giant, which disclosed its results two business days earlier than expected, posted a net loss of $1.79 billion, or 48 cents a share, but still managed to turn in a profit of $4 billion for all of 2008. Widening losses of more than $15 billion at the bank's latest purchase, Merrill Lynch, however, overshadowed the bank's full-year profit.

In the quarter of Bank of America did the things that losing banks to, it accepted fresh capital, marked down $5.5 billion of bad loans, cut its dividend and increase its loan-loss reserves. 

The U.S. had already injected $15 billion into Bank of America and $10 billion into Merrill to bolster the combined company against the credit crunch.

Bank of America charged off $5.54 billion of loans as uncollectible, equal to 2.36 percent of total average loan and leases, compared with 0.91 percent a year earlier, the statement said. The provision for loan losses increased to $8.5 billion from $6.45 billion in the third quarter because of “economic stress on consumers,” the bank said.

But even as Bank of America writhes in the pain of toxic shock syndrome its CEO Ken Lewis seems more concerned with Merrill Lynch. Why?

About three-quarters of the federal aid is intended to cushion Merrill’s losses, with the rest for Bank of America, Chief Financial Officer Joe Price told investors during today’s conference call.

It's the thing that naturally happens when a banker infested government looks out after its own. In this case Merrill Lynch's precious insiders were in real danger of actually having to fork over a dime, but now thanks to the bail out poorly disguised as a merger with Bank of America it's only the working class having to fork over a third of its income, and bear the stealthy inflation tax.

"The additional funds provided to B. of A. is the only reason why the dollar is rallying against the Japanese yen, and why we are seeing a recovery in all of the higher-yielding pairs such as the euro/dollar and pound/dollar," said Kathy Lien, director of currency research at GFT.

So there is, as Bank of America acts as a cash conduit  to Merrill Lynch, investors head for the exits and the you and me working stiffs pick up the tab.