Bank of America offers cash to ease Govt debt

Bank of America, the biggest US bank, says it will pay the Government US$425 million ($590.7 billion) to cancel an unused guarantee of Merrill Lynch's assets and cut reliance on federal support after two bailouts.

The payment would end a dispute over what the bank owes the United States for a promise to help absorb losses on US$118 billion of holdings, mostly at Merrill Lynch.

The federal guarantee helped to seal Bank of America's takeover of the New York brokerage after fourth-quarter losses spiralled past US$15 billion.

Although the accord was announced in January, an agreement was never signed and the bank resisted paying.

Chief executive Kenneth Lewis has said he wants to shrink the US role in company affairs.

Paying the fee was part of a plan to reduce "reliance on Government support and return to normal market funding", the company said.

The Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation will get the money.

"The bank is a wounded duck and everybody wants a piece of them," said Robert Serino, a partner at Buckley Sandler in Washington and a former director of the Comptroller of the Currency's enforcement and compliance division.

"In the past, Ken Lewis was a pretty strong character but now he's been beaten down like everybody else."

Even as the payment was announced, the Securities and Exchange Commission pledged to "vigorously pursue" a case against the bank for not disclosing US$3.6 billion in bonuses to Merrill before the acquisition was completed. Judge Jed Rakoff last week rejected a US$33 million settlement, accusing the bank and SEC of trying to avoid a public trial.

Bank of America also faces pressure from Representative Edolphus Towns, a New York Democrat and chairman of the House oversight committee, who scolded the bank for missing a deadline to turn over documents sought by his panel.

Chief marketing officer Anne Finucane planned to meet Towns to discuss how to provide information "without violating attorney-client privilege", bank spokesman Scott Silvestri said.

The asset guarantee agreement reflected "an encouraging sign of increased stability in the financial system", Treasury spokesman Andrew Williams said.

The bank said in July it expected a settlement of the dispute within 30 days.

"This is another terrible deal for taxpayers negotiated by the US Treasury," said Linus Wilson, a University of Louisiana professor who has studied Government bailout programmes.

The bank is paying less than 10 per cent of a potential US$4.3 billion cost, including warrants associated with US$4 billion in preferred shares cited in the term sheet and never issued.

- BLOOMBERG