Bank of America Corp.'s efforts to leave the federal government's bailout plan have been stalled by disagreements over the bank's capital position, according to a new report.
The bank, which has received $45 billion in assistance under the Troubled Asset Relief Program, has long been interested in exiting the program, in large part because the aid had come with a host of regulations on such matters on executive pay and the distribution of dividends.
The former issue came to a head just last week, when the Treasury Department's pay czar slashed salaries at the seven largest bailed-out firms, including Bank of America. That ruling would not longer apply if the bank no longer owed the government TARP money.
Leaving the program, however, is not as easy as writing a check. The Treasury has said that bank seeking to redeem the stock and warrants they gave the government in exchange for assistance must prove they are stable without it and can raise capital without government guarantees.
The current dispute centers on the bank's capital position, the Wall Street Journal reported. Bank of America has raised $40 billion in additional capital since May - enough, some bank executives say, to allow it to return the TARP funds. Officials at the Treasury Department, however, "believe it ought to replace some of the federal money with new capital above and beyond the $40 billion of equity identified so far this year."
To raise additional capital, Bank of America would have to sell shares, thereby diluting the positions of existing shareholders.
The Journal reported that the bank has also proposed that it repay the $45 billion in parts, beginning with the initial $20 billion it received at the height of last year's financial crisis. That plan, however, appears to hinge on whether it would get the bank out from under the pay czar's authority, the paper reported.
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