Thursday, January 15, 2009

More Propping Up of the Distorted Bank System, Just Ahead

The banking system continues to reveal more ugly creases and cracks than an old hag with her make up off.

The latest to take a look at herself in the mirror, sans makeup, is Bank America. After a shotgun marriage to Merrill Lynch, the hag realizes that Mother Merrill is more a drag than a shot of youth and energy. B of A wanted out, reports indicate.

According to FT, several people close to BofA said that it had told the government that it wanted to scrap its takeover of Merrill Lynch last month after realising the depth of the investment bank’s losses in the fourth quarter.

The Treasury, however, reportedly will step up with billions more in cash to keep the marriage in tact. BofA has already been given $25bn in federal funds as part of the TARP program.

BofA and the Treasury have declined to comment, but reports indicate no final decision on the amount of funds to be injected in BofA has been taken. Rest assured it will be multi-billions.

Meanwhile, Robert Rubin's departure from Citi has that stock reeling. Citi shares plunged on Wednesday, closing down 23 per cent to $4.53, the lowest level since the government’s $300bn bail-out, that was guided in by Rubin.

The plunging stock price at Citi, along with the soaring cost of insuring against a Citi default, is raising concerns that the government might have to take additional steps to buttress the bank. This time, however, Citi won't have Mr. Insider, Bob Rubin, around to stick handle in any new bailout funds.

Looks like things are about to get interesting, again.

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