Posted by Marcelo Perez

The Treasury Department decided to bailout Bank of America today, as the bank, one of the largest in the world, lost over 40% of its market cap in the last week alone. Under its TARP program, the Treasury will inject another $20 billion into B of A, on top of the hefty $25 billion already handed over to the company.

As part of the plan, Treasury and the FDIC, once again, will guarantee against the “possibility of unusually large losses” on up to $118 billion of risky loans and securities backed by commercial and residential mortgages (via MSNBC):

Under terms of the latest agreement, the Federal Reserve and Federal Deposit Insurance Corp. also agreed to protect BofA against further losses on $118 billion in capital markets exposure, mainly linked to Merrill Lynch. BofA will cover the first $10 billion in losses and the government will cover 90 percent of any subsequent losses. In total, the government has put about $163 billion at Bank of America’s disposal.

And what does the tax payer receive in return?

 As compensation for the new support, the government will get $24 billion in preferred stock which will pay an annual interest rate of 8 percent.

How nice! We put $45billion up front and then we guarentee up to $118 billion (33% of the new TARP program) in losses, and what do we get? $24 billion in stock of an ailing company? Not a bad deal…for CEO Ken Lewis and Bank of America.

BofA Earnings Report

For the fourth quarter of 2008, Charlotte-based BofA posted a loss after paying preferred dividends of $2.39 billion, or 48 cents per share, down sharply from a profit of $215 million, or 5 cents per share, a year ago. BofA cited rising credit costs, significant writedowns and trading losses in its capital markets businesses amid the deepening economic recession.

Merrill Lynch posted a loss of $15.31 billion, or $9.62 per share, for the period — underscoring Bank of America’s assertion that it needed extra U.S. aid in order to absorb the investment bank’s bad mortgage bets.

“Last quarter we said that market turbulence, economic uncertainty, and rising unemployment would take its toll on quarterly earnings, and that has certainly been the result for the fourth quarter,” Chief Executive Ken Lewis said during a conference call with investors.

Quarterly revenue after interest expense rose 19 percent to $15.98 billion from $13.45 billion a year earlier. Net interest income, or the money banks make on loans minus what it pays out in interest on personal bank accounts, rose 37 percent to $13.41 billion from $9.82 billion. The increase was fueled by higher market-based income, the favorable rate environment, loan growth and the acquisition of Countrywide.

But noninterest income, or the cash banks make from mortgage loan servicing fees and other fees and charges, declined 29 percent to $2.57 billion. Sales and trading losses in BofA’s capital markets and advisory services segments more than offset higher mortgage banking income, and gains on sales of debt securities.

See Full Earnings Report.