Magazine article American Banker

B of A Nears Deal to Pay for Backing

Magazine article American Banker

B of A Nears Deal to Pay for Backing

Article excerpt

Byline: Cheyenne Hopkins and Paul Davis

WASHINGTON - The Treasury Department and Bank of America Corp. are expected to strike a deal today over how much the Charlotte company owes the government in fees from an unsigned asset guarantee plan struck in January.

The deal is expected to coincide with a deadline for the company, along with nine others that took government stress tests, to detail plans to raise additional capital over the next five months.

Brian Moynihan, B of A's president of global banking, has met with Treasury officials over the past few weeks over the fees, arguing that the company should not have to pay the full load of fees for an asset guarantee it never used, according to a source who requested anonymity.

The guarantee was meant to cover the risk associated with a large group of assets, most of which B of A obtained in its government-orchestrated purchase of Merrill Lynch & Co.

The Treasury has argued that since B of A materially benefited from the announcement of the guarantee plan, the company should still have to pay something.

Most observers said it is likely B of A will have to pay a substantial fee, but exactly how much is unclear.

Under the agreement with the government, B of A would pay the first $10 billion of losses on a $118 billion portfolio, after which the government would cover 90% of the rest. In return, the company would issue to the Treasury $4 billion of preferred stock with an 8% dividend at a cost of roughly $320 million a year.

But B of A never took advantage of the guarantee, and shortly after the stress tests were completed May 7, it announced it was backing out of the agreement.

Officials at the company emphasized that the plan was unsigned, and that details had never been fully resolved. As a result, Moynihan and other officials have privately argued to the Treasury that B of A does not need to pay fees, since it never used the program. …

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