Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Bank of America The Next Citigroup?

Companies / Credit Crisis 2009 Jan 15, 2009 - 01:13 AM GMT

By: Mike_Shedlock

Companies Best Financial Markets Analysis ArticleCharles Darwin's theory was survival of the fittest. The Fed's policy is Survival Of The Weakest . Rather than let the weak go under, the Fed tries to prop them up, draining resources from the strong. We see the Fed's losing play in action once again as Bank of America May Need More U.S. Aid to Absorb Merrill Lynch .

Bank of America Corp., the biggest U.S. bank by assets after this month's purchase of Merrill Lynch & Co., may need more money from the federal government to absorb losses linked to the global credit crisis.

The purchases of money-losing Merrill Lynch and Countrywide Financial Corp., the biggest U.S. home lender, will add to credit costs at Charlotte, North Carolina-based Bank of America, which has been setting aside too little reserves for its own loans, Graham Fisher & Co.'s Joshua Rosner said in a note to clients today. The Wall Street Journal reported talks on a federal infusion have been going on since mid-December.

Propping up Bank of America for a second time would put an additional strain on the Treasury's $700 billion rescue fund for banks. The combined company already received a $25 billion infusion. Citigroup Inc. has received $45 billion of government capital and a U.S. guarantee on $306 billion in troubled assets, and it's divesting the Smith Barney brokerage.

“Given our economic outlook, it seems reasonable to consider BofA may be the next ‘Citi,'” wrote Rosner, a managing director in New York at the Graham Fisher investment-research firm.

“Bank of America has all kinds of problems with its acquisitions,” said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. “The problem with Bank of America is that they've been so acquisitive, they find themselves with very little in tangible equity.”

As Citigroup Goes To Sleep attempting to sell off everything but stripped down core applications, the number of strong banks ready, wiling, and able to absorb the pieces is now down to zero.

Bank of America is already choking on Countrywide Financial and Merrill Lynch. JPMorgan is choking on Washington Mutual and a mass of derivatives a mile thick. Wells Fargo needs to digest Wachovia's mass of toxic pay option ARMS.

The irony in the latter was the FDIC was actually going to allow a merger between Wachovia and Citigroup. Citigroup threw a hissy fit over it as noted by the New York Times in Citi Blasts Wachovia-Wells Fargo Merger Plan .

Stop that deal.

That was the message from Citigroup on Friday, as the financial giant saw its four-day-old agreement to buy Wachovia's banking operations set aside in favor of a $15.1 billion merger between Wachovia and Wells Fargo.

Less than four hours after the newer deal was announced, Citi released an angry statement demanding that Wachovia and Wells Fargo terminate their merger agreement, calling it a “clear breach” of an exclusivity agreement between Citi and Wachovia.

Citi also hinted at possible litigation to halt the union, saying it had “substantial legal rights” related to Wachovia and Friday's transaction.

On Monday, Citigroup announced what it called an “agreement-in-principle” to buy Wachovia's troubled banking operations for nearly $2.2 billion in Citi stock, with assistance from the Federal Deposit Insurance Corporation.

But on Friday, Wachovia surprised most of Wall Street with the announcement that it would sell the entire company to Wells Fargo in a stock swap that required no government assistance.

Citi said Friday that it had been negotiating with Wachovia in good faith and had “nearly completed the definitive agreements required to consummate the Citi/Wachovia transaction” when Wachovia opted for the Wells Fargo deal instead. It also said it had been providing “liquidity support” to Wachovia Bank since Monday.

Buying Wachovia's bank would have filled out Citigroup's footprint in the United States, giving it a strong West Coast presence and making it one of the country's largest retail banking franchises.

Notice the unmitigated arrogance (or was it blatant stupidity) of Citigroup to think it could stand to swallow up Wachovia's toxic assets when it clearly dead and buried in its own muck.

Fed's Policy Brings System To Its Knees

The Fed is bringing the system to its knees with its survival of the weakest game. Inquiring minds may wish to consider In Michigan, Bank Lends Little of Its Bailout Funds .

Some banking experts are even questioning if the bailout may be doing more harm than good, in some cases, by giving banks like Independent a cushion as they struggle to fix their problems, rather than forcing them to sink or swim on their own. It could also delay mergers of weaker banks with healthier ones.

“You are keeping a lot of troubled institutions in kind of a status quo state,” said Eric D. Hovde, the chief executive of a Washington-based hedge fund that invests in the banking industry.

In Congress, anger over the management of the TARP program runs deep. Many lawmakers say that there is little oversight, and that they can see no evidence that the taxpayer money is making its way from the coffers of banks to businesses and consumers.

Anger Over Refusal To Lend

Congress is angered of bailout recipients refusal to lend. Yet banks are now acting responsibly for the first time in years.

Keith Lightbody, a senior vice president at Independent Bank, said it was easy, in retrospect, to see how banks like his ended up where they are today.

“We didn't step back and look at the big picture, asking ourselves, are we really doing the right thing with this loan?” he said. “Everyone was making a lot of money.”

Independent is publicly traded and under pressure from investors to shrink its troubled loan portfolio before lending anew. Yet it still very much wants to make loans, said Robert N. Shuster, Independent's chief financial officer.

“Our whole business is predicated on making loans — that is what we do, that is the mission of the bank,” he said. But the bank cannot afford to simply pass out money, Mr. Shuster said, or everyone involved will lose — the borrower, who would probably default on the loan; the bank, which would experience bigger losses; and the federal government, which is counting on Independent to pay back the $72 million, along with 5 percent dividend payments.

With no surge in lending taking place right away — and the bank very much looking for a way to improve its own balance sheet — Independent took the $72 million check that arrived from Treasury in mid-December and immediately transferred it to the Federal Reserve to pay down short-term loans it had taken out.

Check that out. The Fed lends Independent $72 million at bazooka point (See Compelling Banks To Lend At Bazooka Point ) and Independent takes the $72 million and it immediately pays back the Federal Reserve, not wanting to incur any more losses.

Meanwhile Bank of America is now so bloated with accumulated toxic waste it needs another taxpayer bailout. Is this a great strategy by the Fed and Treasury or what?

By Mike "Mish" Shedlock

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules