Discussions on TARP Repayment of BofA

Bank of America urgently wants to return the $45 billion government investment – they argued that they have already raised new equity of $40 billion and they can already survive without government help. However, some government officials are concerned about the bank’s claimed ability to absorb losses. They believe that BofA should raise new capital above the $40 billion they have raised and use that excess capital to pay off the federal money borrowed.

Within the U.S. government, there were behind-the-scenes discussions on how to gauge the capability of the bank to exit TARP (Troubled Asset Relief Program), which is the bailout funds provided to save the company from financial demise. The Feds just want to make sure that they can thoroughly deal with negative relapses caused by the economy so that they don’t wind up needing another fund infusion from the government.

However, this creates a fairly big dilemma for the bank. They wouldn’t want to raise more capital because it could dilute the existing shares of their stockholders and make them less valuable. Bank of America proposed a payment of $45 billion in chunks, maybe returning the $20 billion first to help digest the takeover of their securities firm, Merrill Lynch & Co.