Federal regulators say Bank of America Corp. owes taxpayers as much as $4 billion, but the company says that the Treasury Department never signed the deal in question and refuses to pay.
The controversy dates back to Bank of America's purchase of Merrill Lynch & Co. Eager to see the deal through, the Treasury Department offered to participate in a loss-sharing agreement to help the bank swallow Merrill Lynch's distressed balance sheet.
Under the terms of that deal, which Bank of America later announced to its shareholders, the bank would pay the Treasury $4 billion in stock and warrants, plus an annual fee on the $118 billion in bad assets the government offered to guarantee. Treasury had already lent the bank $20 billion to complete the merger
In the end, Treasury never closed the deal, and Bank of America later decided it didn't need the government's assistance. Nevertheless, a number of congressmen now say that the widespread belief that the deal had been consummated provided value to Bank of America for which taxpayers should be compensated.
"This announcement of this so-called 'ring-fencing' of Bank of America's toxic assets provided financial stability to Bank of America at a very crucial time," Rep. Edolphus Towns (D-NY) said in a letter this week to Kenneth Lewis, the bank's chief executive. The letter was first obtained by Bloomberg News.
Rep. Towns did not demand any specific payments, and analysts said that a compromise was possible. Among potential solutions would be for Bank of America to pay one-third of the $4 billion for the third of a year the agreement appeared to be in effect, the New York Times reported. Another would be for Bank of America to pay a fee for breaking the agreement, perhaps equal to 5 percent of the total value of the deal, or $200 million.
The controversy dates back to Bank of America's purchase of Merrill Lynch & Co. Eager to see the deal through, the Treasury Department offered to participate in a loss-sharing agreement to help the bank swallow Merrill Lynch's distressed balance sheet.
Under the terms of that deal, which Bank of America later announced to its shareholders, the bank would pay the Treasury $4 billion in stock and warrants, plus an annual fee on the $118 billion in bad assets the government offered to guarantee. Treasury had already lent the bank $20 billion to complete the merger
In the end, Treasury never closed the deal, and Bank of America later decided it didn't need the government's assistance. Nevertheless, a number of congressmen now say that the widespread belief that the deal had been consummated provided value to Bank of America for which taxpayers should be compensated.
"This announcement of this so-called 'ring-fencing' of Bank of America's toxic assets provided financial stability to Bank of America at a very crucial time," Rep. Edolphus Towns (D-NY) said in a letter this week to Kenneth Lewis, the bank's chief executive. The letter was first obtained by Bloomberg News.
Rep. Towns did not demand any specific payments, and analysts said that a compromise was possible. Among potential solutions would be for Bank of America to pay one-third of the $4 billion for the third of a year the agreement appeared to be in effect, the New York Times reported. Another would be for Bank of America to pay a fee for breaking the agreement, perhaps equal to 5 percent of the total value of the deal, or $200 million.
published July 16, 2009, 0 Comments
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