Thread: Bank of America seeks new loan from US government

BofA seeks new loan from US government

By Greg Farrell and Francesco Guerrera in New York and Krishna Guha in Washington

Published: January 15 2009 00:56 | Last updated: January 15 2009 00:56

The US banking sector was shaken on Wednesday by deepening concerns over Citigroup’s financial health and the revelation that Bank of America is counting on a new multibillion-dollar capital injection from the government.

Several people close to BofA said that it had told the government that it wanted to scrap its takeover of Merrill Lynch last month after realising the depth of the investment bank’s losses in the fourth quarter.

BofA, which has already been given $25bn in federal funds, closed the deal on January 1 only after receiving a pledge that it would receive billions of dollars from Washington, they added.

BofA and the Treasury declined to comment. People familiar with the situation said that no final decision on the amount of funds to be injected in BofA has been taken.

A new capital infusion into BofA would mark the third time, after Citi and AIG, that the federal authorities would have had to inject capital into the same company twice. Such a move would raise fears that other banks might ask Washington for additional capital.

Citi shares plunged on Wednesday, closing down 23 per cent to $4.53, the lowest level since the government’s $300bn bail-out of the troubled financial group in November. At this level, Citi, once one of the world’s largest financial groups, is worth just $24.7bn.

The cost of insuring against a default on Citi’s debt soared, raising concerns that the government might have to take additional steps to buttress the bank.

On Tuesday, it emerged that Vikram Pandit, Citi’s embattled chief executive was poised to split off a third of the company – including some of its major US consumer finance operations – into a “non-coreâ€

I guess the boycotts against the Bank of Amigos worked. Now only of our government had the guts to say no to them.