More Bank Troubles
Remember when the government injected billions in TARP money into banks such as Bank of America? When it backstopped the most poisonous assets from Citi with billions in taxpayer funds?
Looks like it didn’t do the trick.
Bank of America reached a new deal for more capital with the government:
Reeling from previously undisclosed losses from its Merrill Lynch & Co. acquisition, Bank of America Corp. received an emergency capital injection of $20 billion from the Treasury, which will also backstop about $118 billion of assets at the bank.
Details of the agreement were released early Friday. In exchange for the extra capital, Bank of America agreed to cut its dividend to a penny, comply with executive compensation limitations and begin a mortgage loan modification program. The U.S. will receive warrants, fees and an 8% dividend on preferred stock.
That brings the total aid given to BofA to $45 billion. As a point of comparison, the budget for public education in 2008 was around $56 billion. This is not an apples-to-oranges comparison - both are investments (albeit in different forms) that we hope to pay dividends in the future. What is the better investment? I’d put my money on education.
The other big news is that the remaining giant of banking, Citigroup, posted another loss and will now split in two, even after selling its Smith Barney brokerage unit:
Citigroup Inc. reported an $8.29 billion net loss for the fourth quarter, putting the year’s red ink at $18.72 billion, as the company said it will reorganize into two business lines focused on banking and other financial services.
Citicorp will focus on Citigroup’s core banking operations in more than 100 countries, while Citi Holdings will be made up of asset management and consumer finance. The management at Citi Holdings will focus on “tightly managing risks and losses,” the company said.
Though I feel we are past the days of wondering which bank will fail next (October seems to so long ago), we’re not out of the woods yet.
