i wonder what this will do for "bac"...
NEW YORK (Reuters) – The U.S. government extended $20 billion of new aid to Bank of America Corp hours before both the largest U.S. bank, and the country's third largest, Citigroup, reported multibillion-dollar losses from the ongoing global credit crisis.
Bank of America posted its first quarterly loss in 17 years on the heels of the government's midnight announcement that it would help the bank absorb its January 1 purchase of troubled brokerage Merrill Lynch & Co.
The U.S. Treasury will provide the new aid in exchange for preferred stock, and along with the Federal Reserve and Federal Deposit Insurance Corp, agreed to limit Bank of America's potential losses on $118 billion in tainted assets.
Also scrambling to survive huge new losses triggered by the credit crunch was Citigroup, which unveiled plans to split in two and shed troubled assets.
The announcements came before a U.S. holiday weekend that ends on Tuesday when President-elect Barack Obama will be sworn in. Obama again said that even with a wide range of measures to pull the United States out of recession, the U.S. economy will likely worsen before it improves.
U.S. Treasury Secretary Henry Paulson, on his last full day in office, said a substantial portion of the second half of the government's $700 billion financial rescue fund should be reserved for bank capital programs.
Top U.S. policy-makers said they are discussing setting up a government bank that would use federal funds to buy troubled assets from financial institutions to try to stem the crisis.
Paulson and FDIC Chairman Sheila Bair both said an "aggregator bank" was one of several ideas U.S. regulators had discussed.
The Treasury said it will lend Chrysler LLC's finance arm $1.5 billion to help it make new car loans as part of a broader program to revive the U.S. auto industry.
The Treasury earlier extended a $4 billion loan to Chrysler for its automotive operations and had granted $13.4 billion in operating loans to General Motors Corp.
Shares in Bank of America and Citigroup rose in early trade after tumbling sharply on Thursday, as investors believe the government will not let the two banks fail.
But the size of the losses and need for fresh aid unsettled Wall Street. The two banks' stocks fell and pulled down shares of their two large rivals, JPMorgan Chase & Co and Wells Fargo & Co.
"Now it's clear that there could be more big banks coming back to the well, asking the government for money," said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey. "When does this end and when do they say no? They just keep writing checks."
Influential bond investor Bill Gross of Pacific Investment Management Co told Reuters that the worst harm to banks' balance sheets may be over.
Fear of more bank losses spread to London, where shares in Barclays fell 25 percent and other bank stocks tumbled as worries about capital and write-downs resurfaced. Dealers said there was no single reason for their sharp slide.
After the market closed, Barclays reported it expects to report pre-tax year profit well ahead of analysts' estimates of 5.3 billion pounds ($7.91 billion), and said it knows of no justification for the stock slide.
The Bank of England and Downing Street confirmed a meeting took place among Prime Minister Gordon Brown, the Bank of England governor, finance minister and securities regulator, but neither would comment on the talks.
British ministers aim to announce yet another bank lending package, a Treasury source told Reuters, while Ireland nationalized Anglo Irish Bank, its third-largest lender, to avoid a collapse.
BofA, CITIGROUP POST HUGE LOSSES
Citigroup, once the world's largest bank, reported a fourth-quarter loss of $8.29 billion and recorded $28.3 billion of write-downs and credit losses. Over the past 15 months Citigroup has amassed $92 billion in losses and write-downs.
Bank of America reported a $1.79 billion quarterly loss, while losses at Merrill Lynch were a record $15.31 billion.
Citigroup stock fell more than 8.0 percent to a session low of $3.44 after Moody's Investors Service said it may cut the bank's credit rating.
Moody's cut the credit ratings of Bank of America, whose shares tumbled 13.7 percent.
After the bell, Credit Suisse cut Citigroup's price target and earnings outlook, and almost doubled its loss estimate for the bank in 2009 to 90 cents from 50 cents per share.
The news of massive new bank losses and more aid came after the U.S. Senate on Thursday cleared the release of the remaining $350 billion of emergency funds to tackle the crisis. The Bank of America aid will come from the first $350 billion package.
With economies and credit markets worldwide yet to respond to massive bailouts and deep interest rate cuts, Bank of Japan Governor Masaaki Shirakawa said financial conditions in the world's second-biggest economy were tightening rapidly.
Conditions in France were also on the slide. The Bank of France estimated the French economy contracted sharply in the fourth quarter and its monthly survey of business managers showed they expect the downturn to deepen.
The euro zone trade balance swung from a surplus to a deficit in November as exports plunged twice as much as imports, data showed, underlining the fast pace at which the region's economy was sliding deeper into recession.
New U.S. economic data raised the possibility of deflation. The pace of U.S. inflation slowed to a half-century low last year and industrial output fell for the first time since 2002.
The reports suggested the economy could take longer to pull out of a downturn that is on track to be the longest and possibly deepest since World War Two.