Bank of America Looks To Repay Gov’t Aid, Exit Loss Share Agreement

Bank of America said on (NYSE: BAC) Tuesday that it has offered to pay back a portion of the government aid it has received, which has reached $45 billion.  The bank is also looking to end the loss sharing agreement it has with the government in regard to the Merrill Lynch acquisition.

The loss sharing agreement was designed to assist Bank of America in absorbing a struggling Merrill Lynch in an effort to stem the fallout of the financial crisis late last year.  According to a recent report by the Wall Street Journal, Bank of America is debating whether to pay roughly $500 hundred million the government wants in order to cancel the agreement.

The agreement basically provided Bank of America with government backing on the Merrill Lynch assets it acquired, which included mortgage backed bonds.  However, apparently an actual legal document was never signed in regard to the agreement and Bank of America has previously argued that it does not owe the Treasury Department anything.

Elsewhere, the bank is devising a plan to begin repaying TARP money.  Plans are not for complete repayment of the $45 billion it has received, but for about $20 billion, which is the amount received last January after acquiring Merrill Lynch.

Bank of America wants to end the loss sharing agreement and repay TARP funds in order to get from under the government’s operating restrictions.  Currently the bank is waiting on Obama’s pay czar, Kenneth Feinberg to approve its 2009 pay package, which details compensation for its top 25 earning employees.  At that point the bank will move forward with any plan to repay TARP funds.

Many other banks have already repaid TARP money, including Goldman Sachs, Morgan Stanley and JP Morgan Chase.  After news surfaced that Bank of America was looking to repay some funds, attention shot toward Well Fargo, who has remained rather quiet in regard to TARP funds and any plans to begin repaying them.

Wells Fargo spoke out on Tuesday in order to extinguish any ideas that the bank was weaker than its competitors.  A spokesperson for the bank said that it intends to repay the government’s funds in a method that is shareholder friendly and that the bank is working closely with regulators to time such actions while maintaining a strong capital level.

Wells Fargo has refused to execute capital raises in order to payback TARP, which is how most of its competitors have repaid TARP funds thus far.