Backdoor Bailout for BAC?
At the risk of trolling the rumor mill, this one’s too good to pass. Consider the crushing implications for the uptown lunch bunch’s collective ego and bottom-line if the latest flash bomb to hit BAC somehow proves true. This from 24/7 Wall St.:
There is a rumor circulated on Wall St. that JP Morgan (NYSE:JPM) will take over Bank of America (NYSE: BAC) within the week. The government will support the deal with a $100 billion investment in preferred shares issued by the combined entity. Alternatively, the government may guarantee the value of a large pool of Bank of America assets. The word is that Treasury Secretary Geithner has discussed the transaction with JP Morgan CEO Jamie Dimon. The “merger” would completely destroy the value of BAC’s common shares.
The government feels that the deal may be necessary as Bank of America struggles unsuccessfully to close several transactions to bolster its balance sheet. The Wall Street Journal reported that Business Insider speculated that the financial firm will need to raise $200 billion which would be another possible event that would wipe out common shareholders.
…
Under federal law, JP Morgan and Bank of America could not combine because together they would have too large a share of several financial markets in the US. Treasury would apparently work with other government agencies to have those rules suspended and then the new combined bank would sell assets to get back into compliance later.
The government’s preference for a deal with JP Morgan rather than a federal takeover may be because it does not want to set the precedent of Washington owning one of the world’s largest banks “paid for” with taxpayer money.
I’m tempted to file this one under “too good to check.” It seems a stretch, requiring multiple exceptions to longstanding banking rules and regulations, and it’s not like the federal government has a spare $100B floating around. Still, I suppose anything’s possible when you have an administration occupying the Oval Office that has repeatedly demonstrated no regard for the rule of law and a propensity to print money out of thin air.
So with BAC’s stock testing new lows and word that it will be jettisoning 3,500 workers with scores more to follow, is it only a matter of time before Bank of America becomes Barack of America, courtesy of a government bailout with taxpayers’ dollars funneled through the cover of JP Morgan?
UPDATE – BAC chiefs say JPMorgan rumor is crazy talk:
In a memo to its employees, Bank of America Corp. (BAC: News) has dismissed rumors that the bank is looking for a merger with rival JPMorgan Chase & Co. (JPM) as “baseless.”
Earlier, reports indicated that Bank of America and JP Morgan are possibly considering a merger, amidst ongoing speculation that the bank would turn to public markets to raise capital.
However, in the memo to its employees, the Charlotte, North Carolina-based bank said such rumors of merger talks with JPMorgan are baseless and does not make any practical sense.
And that whole Countrywide sink pit, that made practical sense. Right.
Extra Credit: Ouch! you know that NC-based tag has to flat pain CCCP & Co.
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