Isn't that rich? It is obvious that BofA indeed benefited from the US Gov backing. Legally, contracts do not need to be signed to be binding. It's just the proof that is more difficult to make when there's no written/signed agreement. But in the case of a public agreement like this one, I don't think it's going to be difficult to make a case against BofA...
In any case, this shows one more time that government intervention leads to unintended consequences.
These consequences are going to be major because, irrelevant of whether BofA is right or wrong:
- BofA will not be able to get any backing when the markets collapse.
- The public image of BofA is going to get hurt.
- BofA has put itself in a position where the government can now do anything they want. They are owned...
July 13 (Bloomberg) -- Bank of America Corp. is trying to avoid paying billions of dollars in fees to U.S. taxpayers for guarantees against losses at Merrill Lynch & Co., saying the rescue agreement was never signed and the funding never used.
Regulators contend Bank of America owes at least part of a $4 billion fee it agreed to pay in January -- even without a completed legal document -- because the company benefited from implied U.S. backing on about $118 billion of Merrill Lynch assets, such as mortgage-backed bonds, people familiar with the matter said. The Charlotte, North Carolina-based bank says it owes the Treasury nothing, according to the people, who declined to be identified because the negotiations are confidential.
Bank of America [...] “got a moral commitment for insurance without tendering a check, so it appears they got something for nothing,” said Representative Brad Sherman, a California Democrat on the House Financial Services Committee. “If the government takes the risk, the government needs to be paid.”
Both sides are under pressure from lawmakers who questioned whether taxpayers are being adequately rewarded for propping up lenders, and why Bank of America’s January acquisition of New York-based Merrill Lynch required a publicly funded bailout. The U.S. provided the bank $20 billion in capital plus the asset guarantees to keep Chief Executive Officer Kenneth Lewis from abandoning the takeover of money-losing Merrill, once the world’s biggest brokerage.
Both sides agree the accord was never signed and the funding went untapped, the people said. Bank spokesman Scott Silvestri and Treasury’s Andrew Williams declined to comment.
Bank of America disclosed the guarantees Jan. 16 along with its first quarterly loss in 17 years. The bank’s news release headlined the guarantee and called the program an “agreement.”
Bank of America would absorb the first $10 billion of losses, with U.S. agencies covering 90 percent of subsequent deficits, said the bank’s Jan. 16 statement. The bank “would pay a premium of 3.4 percent of those assets,” the lender said. Similar commercial accords impose fees of as much as 6 percent, said Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California, research firm.
The bank would pay a $4 billion fee in the form of preferred stock and warrants, plus an annual fee of 20 basis points for undrawn amounts of the $118 billion, or $236 million, according to Treasury’s summary of terms, with more fees if the bank tapped the program. A basis point is one-hundredth of a percent. Bank of America could end the guarantee any time if the U.S. consented, with an “appropriate fee” to be negotiated, the document said.
The term sheet said it was “accepted and agreed by and among the following as of Jan. 15, 2009” and listed the bank, Treasury, Fed and Federal Deposit Insurance Corp. Each specific instrument in the pool of covered assets “must be identified on signing of the guarantee agreement,” the sheet said.
“It’s the fault of the government for never getting it signed,” said Townsend, who said his firm has purchased shares of the bank. “But part of the inherent unfairness in dealing with government is that they can manipulate all kinds of things to make your life hellish.”
“Treasury has to appear tough,” said Kevin Jacques, a former economist for the agency, referring to the Merrill Lynch guarantees. “Otherwise this will be politicized and people will say that the bank and Treasury were in this together and they just ripped off the American taxpayer,” said Jacques, now a finance professor at Baldwin Wallace College in Berea, Ohio. “There is a political cost here if they just let Bank of America walk.”