Marketplace Scratch Pad

Bank of America’s claws

Scott Jagow Dec 3, 2009

You’ve probably seen that Bank of America plans to return the $45 billion it got from the taxpayers. That’s pretty amazing considering where B of A was just a few months ago, but there’s little reason to break out the champagne quite yet.

From the New York Times:

Bank of America will repay part of its relief funds by selling $18.8 billion in stock that is expected to be converted into common stock, a move that will further dilute its existing shares even as it strengthens the bank’s financial footing.

But most of the money will come from money that Bank of America has generated in recent months with its wagers in the financial markets. After its acquisition of Merrill — a takeover that was once panned but now appears to be paying off — Bank of America has taken greater risks to compete with Wall Street giants like Goldman Sachs and JPMorgan Chase.

I was just chatting with Marketplace reporter Steve Henn, and he concurs: B of A has simply been stockpiling cash in order to pay back the government and free itself from government pay caps. Meanwhile, the bank hasn’t been pumping much money into the economy to support businesses that need loans.

Tonight, Steve will also be looking at what B of A’s TARP repayment might mean for taxpayers.

FDIC chairwoman Sheila Bair warns that the administration needs to be very careful about these repayments. Once they’re made, that’s it. There is no next time. At least, that’s what she says.

But at the Daily Beast, Nomi Prins says the bank books still look fishy:

After two weeks sifting through over one thousand pages of SEC filings for the largest banks, I have… concerns. While Washington ponders what to do, or not do, about reforming Wall Street, the nation’s biggest banks, plumped up on government capital and risk-infused trading profits, have been moving stuff around their balance sheets like a multi-billion dollar musical chairs game…

Specifically on B of A:

… the sum of Bank of America’s quarterly figures doesn’t quite add up to the nine months totals. (A few hundred million of discrepancies between friends.) Another item “all other” is off by nearly a quarter of a billion dollars. And so on. The firm also declared, that it “may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment.” In other words, whenever it feels like it. Comforting, isn’t it?

Like if you’re lying on the beach and a crab starts crawling on you and pinching? That kind of comforting?

Then, yes. It is.

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