Bank of America living up to its name, Taxpayers are now the largest shareholders
The bailouts are starting to get ridiculous. After Bank of America reported its first loss in 17 years on huge losses of its recently acquired business Merril Lynch the US government stepped in with another $20 Billion of capital infusion making the American taxpayer the largest shareholder.
The American public now owns a whopping 6% of all Bank of America’s shares. The next top owner on the list is Barclays with almost 4% ownership.
But behind the scenes the recent capital infusion at BAC gets even worse. The US government will step in to back another $118 Billion of Bank of America’s assets to ensure that the bank can continue and that its credit rating remains at triple-A.
The bailout scheme is very similar to that of Citigroup with the initial $10 Billion of losses to be the responsibility of Bank of America and further losses will be split 90-10 between the Fed and the bank. The Fed of course is liable for the 90%.
If you do the math on this bailout the first $10 Billion can readily come from Bank of America’s $20 Billion cash infusion. After that Bank of America could write down $100 Billion more in losses before it even begins to eat through its cash on hand as the Federal Reserve would put up $90 Billion.
Essentially the US government vowed to protect Bank of America from $118 Billion in losses and gave the bank enough money to cover what should be its own portion of the losses. Something is fishy here.
Without the acquisition of Countrywide and Merril Lynch many expected that Bank of America would remain profitable. Bank of America spent $20 Billion (a very popular number) to buy both Merril Lynch and Countrywide home loans.
