Never Mind

So I guess it’s all right.

The Stress Testers say Bank of America has to raise $34 billion. But since they already have $45 billion of TARP money, it’s okay, they can just convert the Feds’ preferred shares to common. Presto, now their captial ratio is okay. Crisis over.

But nothing’s changed. They don’t have any more cash. They just reclassified the government’s investment on their balance sheet. But there’s a problem: how do they pay it back? Treasury will have all these common shares (that also vote). If the bank pays back the remaining $11 billion, are they out of the TARP program? I don’t think so. And if Treasury sells its shares later, Treasury will be out of Bank of America, but Bank of America will never be out of the Treasury. What a mess!

Milton Friedman quipped that there’s nothing so permanent as a temporary government program. By converting their TARP funds, Bank of America just made it so.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-04T20:53:36+00:00 May 6th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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