Taxpayers may not realize it, but they just bailed out Bank of America again, this time to the tune of more than a half billion dollars.
The Charlotte, NC-based bank was one of the biggest recipients of bailout funds during the financial crisis. But Bank of America (BAC) continues to face deep problems related to its troubled mortgage portfolio and investors have battered the stock, which has plunged over 40% so far this year. That’s escalated concerns that the bank may need to raise more capital. Yves Smith at Naked Capitalism has even started a BofA death watch.
But apparently the federal government is determined to resurrect BofA: the Wall Street Journal reports the feds have just used Fannie Mae, which is controlled by the U.S. government, to infuse BofA with $500 million and ease one of the bank’s biggest headaches.
$500 million is somewhat misleading. The actual liability to taxpayers is much greater.
In fact, the deal is worth much more than $500 million to BofA, because getting rid of those servicing rights lifts a huge cost burden off BofA’s shoulders. And if securitized loans are involved, which they most likely are, the sale also limits the BofA’s potential liability to investors for its current servicing violations. Finally, the $500 million is surely more than the servicing rights are worth in an arms-length transaction. How do we know? Beyond the comment that the loans are expected to “deteriorate further,” the goal of the intervention can only be to fix Bank of America’s capital structure, which is easier for the government to do if it overpays for the rights.
In short, purchasing these servicing rights was another Troubled Asset Relief Program.
We still have not been paid back 31% of the bailouts from 2008; Corporate Cronyism at work.