Bank of America was a key player in preventing the systemic failure of the financial system, first by acquiring the teetering Countrywide Financial, and later with its emergency purchase of Merrill Lynch. But Merrill apparently came with a surprise—a $15.3-billion net loss in the fourth quarter. So BofA applied for help under the Targeted Investment Program—TIP—and Treasury said yes.

BofA will get a government backstop for up to $118 billion of troubled assets—the “[g]uarantee is in place 10 years for residential assets and 5 years for non-residential assets,” according to Treasury’s summary of terms. The bank takes on all losses up to $10 billion; Treasury and the Federal Deposit Insurance Corp. absorbs the next $10 billion; the rest is a 90/10 split, with the government taking the bigger hit. The agreement will cost BoA $4 billion in preferred stock and warrants, along with fees on the Federal Reserve loan facility involved.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.