BofA may get another $20B from Feds - report
Government may also shield bank from losses from Merrill Lynch merger by backstopping up to $120 billion in assets, according to a report in the Wall Street Journal.
NEW YORK (CNNMoney.com) -- Bank of America is reportedly close to a deal to get up to $20 billion more from the federal government to absorb its recent purchase of the ailing Merrill Lynch.
U.S. officials are also formulating a plan to backstop up to $120 billion of Bank of America's (BAC, Fortune 500) assets, in a deal similar to one crafted in November for Citigroup (C, Fortune 500), the Wall Street Journal reported Thursday evening.
In such a scenario, Bank of America would only be exposed to a certain level of losses, with the Treasury Department, Federal Deposit Insurance Corp. and Federal Reserve assuming the rest. Bank of America would be on the hook for $20 billion of potential losses, and the government would shoulder up to $100 billion, according to the New York Times.
The arrangement could be announced with the bank's fourth-quarter earnings, which were moved up to early Friday morning. Bank of America's shares fell 18.4% Thursday and have tumbled 36% so far this week. The company declined to comment.
Bank of America, which has already received $25 billion in government capital, including $10 billion set aside for Merrill Lynch, reportedly first approached the Treasury Department for help last month as losses mounted at the failing Wall Street firm. Government officials agreed to step in to avoid the merger's collapse, which would further roil the financial system.
The purchase, which was announced hours before Lehman Brothers filed for bankruptcy in mid-September, closed Jan. 1.
Merrill Lynch's losses could top $10 billion, the Journal reported.
Treasury officials declined to comment, while a Bank of America spokesman could not be reached.
The deal would mark the second time the federal government has had to step in again to prop up a faltering financial institution. In November, officials injected another $20 billion into Citigroup, which had already received $25 billion, and agreed to backstop more than $300 billion in troubled assets.
Under the terms of the Citigroup rescue package, the bank would be on the hook for the first $29 billion in losses on the covered assets, which includes mostly loans backed by residential and commercial mortgages. It would cover 10% of losses above that amount, with the government shouldering the rest.
The Treasury Department has less than $60 billion left to inject into banks under its capital purchase program. President-elect Barack Obama on Thursday secured access to the $350 billion remaining in the federal bailout package, after a measure that would have blocked the funds' release failed in the Senate.
Some say banks are likely to get additional capital infusions this year. Federal Reserve Chairman Ben Bernanke said Tuesday that the government must pump more money into troubled financial institutions and that further guarantees of their debt could be necessary.
Bank of America, which had been viewed as one of the strongest banks in the country, may be buckling as the nation's economy worsens. Also, several key Merrill Lynch executives recently departed the merged firm.
The Charlotte, N.C.-based bank has also taken over two ailing companies that thrust it deeper into the most troubled sectors of the financial system. Not only did it take a big gamble on its $24 billion acquisition of the faltering brokerage titan, but it also bought battered mortgage lender Countrywide Financial early last year.
Analysts are rapidly reducing their estimates for the bank, with some even expecting a loss. Citigroup is expected to report a whopping loss Friday, while JPMorgan Chase (JPM, Fortune 500) said its profits plummet 76% Thursday.
Bank of America is expected to report higher charge-offs for uncollectable debts, increased loan reserves and greater trading losses, wrote Richard X. Bove, analyst with Ladenburg Thalmann. He reduced his estimates to $0.68 per share from $1.14 per share on Wednesday.
Merrill Lynch is expected to shave 15 cents off Bank of America's 2009 earnings, wrote Jeff Harte, analyst with Sandler O'Neill & Partners, who predicts the bank will report a 2-cent loss for the quarter.
"The acquisition of [Merrill Lynch] significantly increases [Bank of America's] exposure to currently depressed capital markets-related revenues," Harte wrote.
Bank of America already announced it plans to shed up to 35,000 jobs over the next three years as it integrates the Wall Street firm. Chief Executive Ken Lewis gave up his 2008 bonus last week. 
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