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Bank of America to Receive Further Funding

Fri, 16 Jan 2009

The US government has provided Bank of America with extra funding following concerns regarding the banks’ deteriorating capital base. The bank will receive $20 billion in government aid, in addition to $118 billion worth of guarantees against bad assets . The deal guarantees the banks’ residential and commercial mortgage investments, derivatives and corporate debt . The funding, which follows a 17.5 per cent fall in the bank’s share price yesterday, is designed to partly offset the loss incurred by America’s largest bank when it bought Merrill Lynch .

In return for the funding, the US Treasury will take a stake in the bank, whilst the bank must also meet restrictions on executive pay. Having already received $25 billion in funding from the government’s bail-out, the latest funding is said by many to confirm that the bank underestimated the levels of debt that would accompany the takeover of Merrill Lynch.

The US Treasury said, ‘The objective of this programme is to foster financial market stability and thereby to strengthen the economy and protect American jobs, savings and retirement security’. In addition to the $20bn cash injection, the Treasury will ‘provide protection against the possibility of unusually large losses on an asset pool of approximately $118bn of loans ’.
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