US doubles up with $140bn Bank of America bailout

The US is to throw more mind-boggling sums of cash at the downturn, including a $140bn BoA bailout...

Financial behemoth Bank of America is set to receive a massive $140bn state lifeline, as President-elect Obama prepares to spend more than $1trn on getting the US out of recession. The BoA rescue, which includes $20bn in cash plus $118bn of guarantees for a pool of its dodgiest assets, comes just after the bank completed its acquisition of Merrill Lynch – rather suggesting that the management may not have done its sums properly (or that they were misled, as they're now claiming). But although it leaves the BoA board rather red-faced, at least it shows that the US government is prepared to do whatever it takes to keep the banking sector afloat...

The BoA bail-out money is coming from Hank Paulson’s TARP pot, after President-elect Obama was given the all-clear by the Senate to spend the remaining $350bn of the controversial $700bn fund (although only after managing to put down a Republican rebellion, by promising to spend a substantial chunk on tackling the mortgage crisis). BoA was actually seen as one of the stronger banks, as evidenced by the Merrill deal – but after its share price dipped 18% yesterday (along with most of the other banks, to be fair), the US government was forced to step in and bolster its capital position. It’ll be taking a stake in the bank in return.

And the spending won’t stop there: the majority Democrats in the House of Representatives have just unveiled plans for a further $825bn ‘American Recovery and Reinvestment Plan’, developed in conjunction with the incoming President – a hugely expensive package of stimulus measures for the economy. Consisting of $550bn in emergency spending (which will be used to build roads, bridges, and schools, and provide healthcare benefits to low-income families) plus another $275bn in temporary tax benefits, this will mean Obama has a war-chest of $1.175trn to fight the recession. It’s an almost unimaginable sum, and could double the US national debt (which is already at record levels).

Sign in to continue

Sign in

Trouble signing in?

Reset password: Click here

Email: mtsupport@haymarket.com

Call: 020 8267 8121

Register

FREE

  • Up to 4 free articles a month
  • Free email bulletins

Register Now

Become a subscriber

From £66 a quarter

  • Full access to managementtoday.co.uk
  • Exclusive event discounts
  • Management Today's print magazine
  • Plus lots more, including our State of the Industry Report.

Choose a Package