Monday, January 3, 2011

TARP Bank Gets Bailed Again

BofA CEO Brian Moynihan has reason to smile. Bloomberg is reporting this morning that Bank of America has reached a settlement with government-sponsored enterprises Fannie Mae and Freddie Mac over soured home-mortage loans sold to the GSEs by Countrywide Financial Corp. (now part of BofA).

The total cost of the settlement to BofA is $2.8 billion, or less than half of the GSEs' outstanding putback demands. Fannie Mae CEO Michael Williams calls the settlement a "fair and responsible resolution." But if it is indeed fair to U.S. taxpayers, who are backstopping the GSEs, then why is Moynihan smiling? And why is BofA's stock price up over 4% in premarket trading?

Some say the deal "smells to high heaven." Congresswoman Maxine Waters calls it a "giveaway." Christopher Whalen of Institutional Risk Analytics calls it "clearly a gift" to BofA shareholders, who have been showered this season. According to Whalen, "the single digit billions BofA paid to Fannie and Freddie is less than a quarter of my firm's estimate of such losses prior to the announcement."

The wrist-slap has goosed the stock to over $14 a share. This is another chance for MainePERS to exit gracefully. Meanwhile, where are the criminal indictments for the bank officers that peddled these fraudulent loans in the first place? Where indeed?

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