Bank of America is seeking to repay some of the billions of dollars in US government aid it has received in a bid to reduce federal involvement in the company, the Wall Street Journal reported yesterday.
The federal government, meanwhile, is pressing the bank to pay about US$500 million to end a tentative pact that would have seen the government share its losses on some Bank of America assets, the Journal said, citing people familiar with the matter.
The move comes as several US banks have repaid government aid they received as part of the Troubled Asset Relief Program (TARP), a federal bailout.
Although Bank of America is not seeking to repay the full US$45 billion in TARP aid it obtained, the company has proposed starting by returning the US$20 billion in additional aid it received in January while hesitating to take over troubled investment firm Merrill Lynch.
By repaying some of the aid, the Charlotte, North Carolina-based bank would no longer have its executive compensation packages reviewed by Kenneth Feinberg, the “pay czar” of US President Barack Obama’s administration.
But the Journal cautioned that even giving back the funds would not end government involvement in the bank, which still operates under a “memorandum of understanding,” a strict regulatory sanction that requires it to improve its risk and liquidity management while also overhauling its board.
On top of the additional TARP money, the government agreed in January to cover losses for a US$118 billion pool of risky assets owned by the bank and Merrill Lynch.
Bank of America would be responsible for the first US$10 billion in losses, while the government would cover 90 percent of the remaining assets, the newspaper said.
In return for the protection, the bank would issue US$4 billion in preferred stock that carried some US$320 million in annual dividends to the Treasury Department.
It would also pay the Federal Reserve US$236 million — two-tenths of a percent of the value of the risky assets.
Should the bank want out, the Treasury and Fed asked for an exit fee of between US$300 million and US$500 million, the Journal said, noting that Bank of America was now considering the request.
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