- JP Morgan May Take Over Bank Of America!!! almost bankrupt again!!
1JP Morgan May Take Over Bank Of America
By 24/7 Wall St.
There is a rumor circulated on Wall St. that JP Morgan (NYSE: JPM) will
takeover Bank of America (NYSE: BAC) within the week. The government will
support the deal with a $100 billion investment in preferred shares issued
by the combined entity. Alternatively, the government may guarantee the
value of a large pool of Bank of America assets. The word is that Treasury
Secretary Geithner has discussed the transaction with JP Morgan CEO Jamie
Dimon.The "merger" would completely destroy the value of BAC's common shares.
The government feels that the deal may be necessary as Bank of America
struggles unsuccessfully to close several transactions to bolster its
balance sheet. The Wall Street Journal reported that the financial firm will
need to raise $200 billion which would be another possible event that would
wipe out common shareholders.
Bank of America's fortunes have been hurt by events in just the last few
days. A New York State judge agreed to allow institutional investors to
intervene in an $8.5 billion settlement between the bank and groups that
lost money on mortgage-backed securities. China Construction Bank Corp said
Bank of American will continue to hold 50% of its share in the foreign
financial firm. Many investors hoped Bank of America would sell its entire
stake to raise money. Several analysts believe that the costs of owning
mortgage firm Countrywide Credit have grown unexpectedly large.
Under federal law, JP Morgan and Bank of America could not combine because
together they would have too large a share of several financial markets in
the US. Treasury would apparently work with other government agencies to
have those rules suspended and then the new combined bank would sell assets
to get back into compliance later.
The government's preference for a deal with JP Morgan rather than a federal
takeover may be because it does not want to set the precedent of Washington
owning one of the world's largest banks "paid for" with taxpayer money.
Note: Credit default swap insurance on the bank's unsecured debt jumped 64
basis points to 435 basis points, meaning it would cost $435,000 per year
for five years to insure $10 million in bonds, according to Markit (via
Douglas A. McIntyre