Bank of America Corp.'s stock, which had already dropped more than 27 percent this month, fell another 18 percent in Thursday trading.
BofA's stock, which has traded between $10.01 and $45.08 over the last year, closed at $8.32 per share Thursday, down from Wednesday's closing price of $10.20.
The drop in value follows a report from The Wall Street Journal late Wednesday that the federal government may commit billions more in aid to BofA as it acquires Merrill Lynch & Co. Inc.
According to the report, which cites individuals familiar with the situation, discussions over the funds began last month when BofA told the U.S. Treasury Department it might not acquire Merrill because of the securities firm's larger-than-expected losses in the fourth quarter.
The government agreed to a plan that includes new federal funds because it was concerned that a failed deal could affect the financial markets.
The report says details are slated to be released Tuesday when BofA announces its fourth-quarter earnings.
A possible arrangement might protect BofA from some losses on Merrill's bad assets, the newspaper says.
A BofA spokesman had no comment on the Journal 's report.
So far, BofA has received $25 billion through the federal bailout of the nation's financial system. Under the Troubled Asset Relief Program (TARP) program, the Treasury Department is purchasing up to $250 billion in preferred stock in U.S. banks. The program was designed to stabilize the ailing financial system and to encourage banks to increase lending and stimulate the economy.
The bank received $15 billion in late October. Another $10 million was originally intended for Merrill. Because BofA acquired the securities firm Jan. 1, the Charlotte-based bank (NYSE:BAC) got the $10 billion. Treasury forwarded the funds through the Troubled Asset Relief Program on Jan 9.
Concerns have grown about BofA's financial position in recent weeks. The $2.7-trillion-asset bank has enormous exposure to consumer loans, which are deteriorating along with the economy. It also is juggling two merger integrations in Countrywide Financial Corp. and Merrill, eliminating 42,500 jobs across the company tied to those two deals.
This week Citigroup Inc. (NYSE:C) analyst Keith Horowitz said he expected BofA to post a $3.6 billion loss in the fourth quarter, and he also believes the company will cut its dividend again, to 5 cents from 32 cents. In the third quarter the bank cut its dividend by 50 percent.
In a research note last night, Standard & Poor's analyst Stuart Plesser said that even with additional government funding, BofA's capital levels will still be low relative to peers. Banks are required to maintain a certain amount of capital to protect against loan losses, and Plesser expects BofA will likely have to raise additional equity capital in the coming months and cut its dividend again. A capital raise via a common stock offering would dilute existing shareholders' equity further; in October the bank raised $10 billion in new capital through a common stock offering. Plesser continues to rate BofA's shares a "sell."
Christoper Mutascio, an analyst with Stifel Nicolaus, says he is reserving judgment on the latest capital infusion from the government. In a note this morning, Mutascio says while "the initial take on this is negative," the devil will be in the details and terms of the capital infusion. If the government assistance is "punitive, then it is a bailout of (BofA), which is not good. If it is advantageous then it would appear that (BofA) earned some ‘goodwill' from the federal government and any initial negative reaction would be premature." Mutascio rates the shares a "buy."
BofA reported net income of $1.17 billion in the third quarter, down from $3.7 billion a year earlier. Analysts polled by Thomson Financial expect the company to report fourth-quarter earnings of $1.2 billion, or 8 cents per share.
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