WASHINGTON — The Treasury Department and Bank of America Corp. are expected to strike a deal Monday over how much the Charlotte company owes the government in fees from an unsigned asset guarantee plan struck in January.
The deal is expected to coincide with a deadline for the company, along with nine others that took government stress tests, to detail plans to raise additional capital over the next five months.
Brian Moynihan, B of A's president of global banking, has met with Treasury officials over the past few weeks over the fees, arguing that the company should not have to pay the full load of fees for an asset guarantee it never used, according to a source who requested anonymity.
The guarantee was meant to cover the risk associated with a large group of assets, most of which B of A obtained in its government-orchestrated purchase of Merrill Lynch & Co.
The Treasury has argued that since B of A materially benefited from the announcement of the guarantee plan, the company should still have to pay something.
Most observers said it is likely B of A will have to pay a substantial fee, but exactly how much is unclear.
Under the agreement with the government, B of A would pay the first $10 billion of losses on a $118 billion portfolio, after which the government would cover 90% of the rest. In return, the company would issue to the Treasury $4 billion of preferred stock with an 8% dividend at a cost of roughly $320 million a year.
But B of A never took advantage of the guarantee, and shortly after the stress tests were completed May 7, it announced it was backing out of the agreement.
Officials at the company emphasized that the plan was unsigned, and that details had never been fully resolved. As a result, Moynihan and other officials have privately argued to the Treasury that B of A does not need to pay fees, since it never used the program. They argue that Treasury touted the agreement — not B of A — before it was signed, and that they should not be held responsible, even if the loan guarantee helped the company.
The Treasury, along with observers interviewed for this story, said that B of A's argument was weak, and that they expected the company to pay a substantial fee.
"Treasury is absolutely correct," said Kevin Jacques, a former official at the Treasury and the Office of the Comptroller of the Currency, who holds the Boynton D. Murch Chair in Finance at Baldwin-Wallace College and. "Whether it is explicit or implied, a guarantee by the Treasury Department is making you somewhat risk free. The market behaved as if that contract was in place."
But Allan Schott, a consultant who was a former general counsel for the OCC and a former assistant general counsel at Treasury, said the government made an error by not making B of A sign the contract before it was announced.
"The issue of not signing a contract is sort of shame on the government issue," he said. "Were they acting that fast without trying to guarantee the government's position?"
Still, Schott said it was clear that B of A should pay something.
"There's value there," he said. "B of A got a benefit out of it, and you have to pay something for what they got. They stayed afloat."
Separately, B of A said Friday it added four directors to its board, including two former regulators.
The company said former Gov. Susan Bies of the Federal Reserve Board and former Federal Deposit Insurance Corp. Chairman Don Powell, along with the retired executives William P. Boardman of Bank One Corp. and D. Paul Jones Jr. of Compass Bancshares Inc., had been elected.
Last week O. Temple Sloan and Robert L. Tillman retired as directors.
