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Bank of America gets $138b new govt lifeline

AFP, Washington
Bank of America, the largest US bank by assets, got a new government lifeline yesterday worth 138 billion dollars to help it absorb broker Merrill Lynch in another sign of the depths of lire US banking crisis.
Conditions for the new aid include meeting strict restrictions on executive pay and compensation, and implementing a mortgage loan modification program, the US TYeasury Department said in a 1 joint statement with the Federal Deposit Insurance Corporation (FDIC).
News of the bailout rallied global stock markets on Friday after BofA saw its already weakened shares slide 18.4 percent to 8.32 dollars in Thursday trade on Wall Street amid concerns about the deal.
"Market sentiment has been lifted ... after the US authorities announced plans to provide financial aid to Batik of America which has been struggling to digest the purchase of Merrill Lynch," said economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ in London.
The TYeasury' said that it "will invest 20 billion dollars" in BofA from the TYoubled Assets Relief Program (TARP) "in exchange for preferred stock with an eight percent dividend to theTreasury."
TheTYeasury and the FDIC will also "provide protection against the possibility of unusually large losses on an asset pool of approximately 118 billion dollars of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value." the statement read.
"The objective of this program is to foster financial market stability and thereby to strengthen the economy and protect American jobs, savings, and retirement security," Treasury said.
BofA has already received 25 billion dollars (19 billion euros! in capital..injections from the TARP, a US financial bailout fund set up to help rescue mostly banks reeling from financial turmoil triggered by a home mortgage meltdown.
That included 10 billion dollars for the investment brokerage firm Merrill Lynch, which BofA bought in a deal that closed January 1.
The new deal is similar in structure to the support
offered to Citigroup in November, Treasury'said.
BofA will absorb the first 10 billion dollars of losses and the US tax payers will cover the next 10 billion. Any additional losses will be shared 90 percent by the US government and 10 percent by BofA.
The funds going to BofA come from bailout money that had been promised but not delivered, to other banks, aTYeasury official told reporters in a pre dawn conference call.
It will be up to the new president. Barack Obama --who takes office on January 20 - to find new funds for the smaller banks, the official said.
The money also follows press reports of larger than expected losses by Merrill Lynch. The brokerage will be taking a fourth-quarter writedown of between 15 billion and 20 billion dollars, the New York Times reported Friday, citing two people briefed on the situation.
The Treasury announcement came just hours before BofA releases Friday its fourth-quarter earnings and hours after the US Senate voted Thursday to release of the second half of the 700-billion-dollar financial bailout package designed by the outgoing administration of President George W. Bush.