Is Bank of America preparing for a Chapter 11?

[Klukie]

By Christopher Whalen

Wed Oct 19, 2011 1:23pm EDT

Bank of America has managed to step into the kimchee several times over the past couple of months, an achievement that only warms the hearts of crisis communications professionals. First came the abortive settlement of $10 billion or so in put-back claims by some large investors. The State of New York and anyone else paying attention intervened. Settlement is now mostly muerto in political terms, although the big investors are still paying the big lawyers to soldier on in hope of forcing a settlement on all parties. Only in New York are such things possible.

Then came the decision by Bank America CEO Brian Moynihan to impose a $5 per month fee on ATM transactions, this in response to the Dodd-Frank law which cuts about half of the profits for big banks in the electronic payments market. Consumers reacted in rage to the announcement, which arguably helped to catalyze the Occupy Wall Street movement. Truth is that the big bank’s cartel control in payments is under assault by more than Congress. Think technology, Apple and Google, and stay tuned for a future post on the payments revolution. Steve Jobs does get the last laugh on the big banks.

Most recently Bank America drew attention to itself by disclosing that it had moved all of the derivatives footings from its Merrill Lynch subsidiary to the lead bank, Bank of America N.A. Bloomberg ran the first story, reporting “BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit.” This report led to comments and reports claiming that the Fed, by allowing this move, had somehow impaired the national patrimony and violated Section 23A of the Federal Reserve Act. Section 23A is among the more bizarre parts of the Fed’s enabling law and governs transactions between banks and affiliates.

http://www.reuters.com/article/2011/10/19/idUS200361147020111019

[supernova]

1. I used to have a ML account

a few funds my Mother left me. Over the course of this awful economic decade I lost it all to the need to pay bills and get by. That's what happens when you go through multiple rounds of layoffs.

I may wind up feeling better about that if neither BoA nor ML will exist much longer.

[banned from Kos]

2. No. This is part of a short whisper campaign. It will fail.

However, there are credible reports that BAC may file bankruptcy for its Countrywide unit to prevent future liability. Cutting that unit loose would enhance its capital position greatly as well.

[Klukie]

3. And how do you know this?

[banned from Kos]

4. read it on Bloomberg

http://www.bloomberg.com/news/2011-09-16/bofa-said-to-keep-bankruptcy-as-option-for-countrywide-unit.html

This would divest BAC of its biggest problem.

If you are short BAC - cover!

[Old and In the Way]

5. Concern is that this transaction takes on a whole new class of debtholders - the US taxpayer.

I'm no tax accounting lawyer and probably am clueless on the relevant law, but common sense tells me that these guys are trying to have another "too big to fail" moment. BOA went into the Countrywide deal fully knowing the extent of their problems and liabilities. Why do they get to unilaterally move this exposure to an entity that could offload the mess on the taxpayer.

[stranger81]

6. Splitting off all the ML derivatives liabilities sure looks like a pre-BK move to me [n/t]

[banned from Kos]

8. Looks like a move to spin-off Merrill to me.

Merrill is worth at least $50 billion.

[Pacifist Patriot]

7. So who gets the loan payment I'm sending them every month if they tank?

Geez, with their interest rates and fees they've got to be engaged in serious mismanagement if they can't keep it together.

[Jacobin]

9. Banks can't file under Chapter 11

They are liquidated by the FDIC.

Maybe technical, but it makes a difference

[Supersedeas]

10. Hmmmm, the FDIC....I see....