BofA Seeks Partial TARP Repayment to Avoid Pay Oversight

The bank has told regulators that would like to pay off the $20 billion the government gave it to ease its purchase of Merrill Lynch & Co. earlier this year. That assistance pushed the company into the ranks of those receiving "exceptional" aid under the Troubled Asset Relief Program - a designation that comes with strict restrictions on executive pay and other matters.

The Wall Street Journal was the first to report on the ongoing discussions between Bank of America and the Treasury Department.

Under the terms of Bank of America's purchase of Merrill Lynch, the federal government agreed to provide $20 billion in direct assistance for the merger. It also promised to backstop losses incurred by Bank of America from the toxic assets it would be taking on its books, and promised to absorb losses directly on a particularly troublesome $118 billion asset pool held by Merrill.

In return for the guarantees, Bank of America gave the Treasury $4 billion in preferred stock and agreed to pay an 8 percent dividend, or $320 million a year. It also agreed to pay $236 million in annual fees on the $118 billion backstop.

While Bank of America was eager for the assistance when closing on the deal to purchase Merrill, it has since had second thoughts. Earlier this year, it tried to argue that the deal had never been signed, though it quickly abandoned that position in response to Treasury arguments
that the company had behaved as if the deal was finalized and had received market benefits from that perception.

In order to abandon the program now, Bank of America will have to pay fees of $300 million to $500 million. The Journal reported that regulators are leaning toward the latter figure.

Leaving the loan guarantee program now would mean that the bank would no longer be under the oversight of Kenneth R. Feinberg, the Treasury's special master for compensation issues, or pay czar.