Chillin' out till it needs to be funded
Bank of America Corp will receive $20 billion 13 billion pounds in fresh government investments and a federal backstop against $118 billion of bad assets it holds to help it absorb Merrill Lynch & Co, U.S. officials said on Friday.
As part of an emergency plan announced by the Treasury Department, the Federal Reserve and Federal Deposit Insurance Corp, Treasury will provide Bank of America, the largest U.S. bank by assets, with $20 billion in fresh capital from a government bailout fund in exchange for preferred stock.
The government also agreed to share in losses on the troubled assets, which Bank of America took on when it paid an estimated $19.4 billion for Merrill on January 1.
With the financial system foundering under a mountain of bad mortgage-related debt, officials feared a deteriorating capital base at Bank of America, which has already received $25 billion from the government, posed a risk to the financial system as a whole.
The government backstop will cover only domestic assets originated before mid-March 2008 and will cover residential and commercial mortgage investments, derivatives and corporate debt.