NEW YORK (MarketWatch) -- Bank of America is reportedly near a deal with regulators for as much as $20 billion in additional federal aid - coming on top of the $25 billion that the firm has already received.
Late Thursday, the Wall Street Journal reported that Bank of America was near an agreement with U.S. officials that would provide it with between $15 billion and $20 billion of fresh capital. The deal would also include backstopping $115 billion to $120 billion of the firm's assets, according to the report.
The news comes after BofA's shares gyrated wildly during the day, as investors reacted to earlier reports that the firm will need more government funds to stay afloat.
The shares lost almost 30% of their value at one point during the trading session, before recovering more than half those losses in afternoon trade.
Late Wednesday, The Wall Street Journal reported that the Treasury Department decided to use money from its Troubled Asset Relief Program, or TARP, to help Charlotte, N.C.-based Bank of America because it feared the deal's failure could affect the stability of U.S. financial markets, the report said.
Details are expected to be announced when the company -- the largest U.S. bank by assets -- reports fourth-quarter results, scheduled for Tuesday.
Bank of America spokesman Scott Silvestri declined to comment, as did a Treasury spokeswoman.
"Even with help from the government, we think Bank of America's tangible-equity levels are low relative to peers and that it will need to cut its dividend and or raise equity capital in the coming months," said Stuart Plesser, analyst at Standard & Poor's Equity Research.
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received a $25 billion investment from the Treasury Department last year under TARP. But the bank told the Treasury in mid-December that it was unlikely to complete its purchase of Merrill because the brokerage firm had suffered larger-than-expected losses in the fourth quarter, the report said, citing a person familiar with the talks.
Any possible arrangement might protect Bank of America from losses on Merrill's bad assets. There would be a cap on the amount of losses the bank would have to absorb, with the federal government being on the hook for the remainder, according to the report.
Bank of America closed its acquisition of Merrill on Jan. 1, albeit with the understanding that the Treasury and the bank would hammer out a plan to provide more government support.
More trouble for banks
The news suggests that the worst of the banking crisis may not have yet passed. The KBW Bank Index
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has dropped 19% so far this year.
Barclays Capital fixed-income analysts Jonathan Glionna and Miguel Crivelli said that deteriorating loan quality, continued losses on risky securities and goodwill impairments will result in losses for the 27 major banks they cover. The analysts published a fourth-quarter industry preview on Wednesday.
The recession will cause the problems in loan portfolios to spread from residential-related products to credit cards and commercial real estate, leading to materially higher nonperforming assets and exposing the inadequacy of banks' loan-loss reserves, they said.
"With unemployment reaching 7.2% and [gross domestic product] declining, we expect nonperforming loans to increase substantially, from $94 billion to $125 billion for our 27-bank aggregate," the analysts said. "This will force banks to set aside large loan-loss provisions, impairing earnings."
The only bright spot is that the government will continue to support large, important banks such as Bank of America, J.P. Morgan Chase & Co.
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and Wells Fargo & Co.
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, they said.
Citi's woes
Meanwhile, Citigroup Inc. is due to report financial results Friday morning that promise to command great scrutiny. The Wall Street Journal reported Wednesday that Citi executives are bracing for an operating loss of at least $10 billion.
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lost more than one-third of their market value this week as news emerged that the bank will try to shrink itself under pressure from big losses.
See full story on Citi moves.
Citi's shares closed well under $5 -- the first time its stock was below that level since Nov. 21 -- as investors worried that the bank may struggle to sell units and unwind positions at attractive prices in the midst of turbulent markets.
"We are embarked on a long-term transformation of Citi," chief executive officer Vikram Pandit told employees in a memo made public Wednesday.
"Our goal is to streamline our operations, strengthen our balance sheet [and] position ourselves to take advantage of historic global growth opportunities."
Pandit sought to strike an optimistic note.
"Economics and psychology are both important in the markets," he said. "The economic model of our business is sound and positions the company for success over the long term. The clarity we provide as we report earnings should address the psychology of the market."
Alistair Barr is a reporter for MarketWatch in San Francisco.
Sam Mamudi is a reporter for MarketWatch in New York.