Thursday, April 23, 2009

Bank of America: Stable or Not?

This Bloomberg article confuses me.

  1. Federal regulators didn't like BoA's earnings and dividends, worrying BoA wouldn't be able to raise capital.
  2. Regulators suggested cut their dividend from $.32 to $.05 per share.
  3. The Fed pressured BoA to buy Merrill-Lynch, which they did in December.
  4. BoA lost $1.79B in Q4 '08.
  5. Merrill lost more than $15B.
  6. I don't know how much of that gets attributed to BoA's books, but it must be more than $1.79B.

It looks to me like BoA was on track to profit in Q4, and the Merrill acquisition pulled them down. If so, then BoA didn't really need a bailout at all. So some questions:

  1. If regulators were worried about BoA's stability, why pressure them to buy Merrill and take on more instability?
  2. If BoA hadn't bought Merrill, would they have needed any TARP money?
  3. Why not just prop up Merrill directly? I understand the desire to appear "capitalist", but nationalizing Merrill strikes me as less intervention than TARP.
Clearly I'm missing something.