20090115 bank of america 35
Taxis make their way past a Bank of America branch at New York's Time Square in New York. Bank of America said it expects to cut up to 35,000 jobs over the next three years amid a sharp economic slowdown stemming from financial turmoil and its acquisition of Merrill Lynch. - 


KAI RYSSDAL: Bank of America. For the past couple of months it's been one of the good banks. In good enough shape to buy the failed mortgage lender Countrywide last summer. Big enough to not need money from the TARP.

But CEO Ken Lewis took $15 billion anyway just to make everybody else feel OK about it. Healthy enough to buy Merrill Lynch when it was going under back in September. And oh, by the way, getting Merrill's $10 billion in TARP money as a sweetener.

Now we know all was not as it seemed. Even before the books were closed on 2008, B of A went back to the Treasury to report problems with that Merrill deal.

From New York, Ashley Milne-Tyte reports.

ASHLEY MILNE-TYTE: Reports indicate that Bank of America asked the government for additional funds last month. The bank said its deal with Merrill Lynch was in danger because Merrill's results looked far worse than expected. So Uncle Sam promised Bank of America more money, and the deal went through. But what happened to the original $25 billion in TARP money? Christopher Whalen is a partner at Institutional Risk Analytics.

Christopher Whalen: Primarily it's been used for absorbing losses. You know, all three of the top banks have different problems but they all are seeing loss rates for both securities and loans going up.

He says the government shouldn't extend any further largesse to the bank.

Whalen: If we keep putting money into big banks where we're essentially just covering operating losses, but we're not dealing with the solvency issue, we're just buying time.

But Jamie Peters, an equity analyst at Morningstar, says the government will pony up the extra funds.

Jamie Peters: We've seen in this series of bailouts that the government doesn't want these too-large-to-fail institutions to actually fail. And so stepping in and bailing out Bank of America is pretty much the only option.

Peters says the government's likely to inject capital in return for preferred shares, among other things.

PETERS: Bank of America's dividend, probably going to go away, practically down to a cent a share.

The bank announces fourth-quarter earnings next week. Peters says for the first time in many years it's expected to report a loss.

In New York I'm Ashley Milne-Tyte for Marketplace.