Bank of America reached an agreement Monday to pay the United States $425 million to exit a costly arrangement whereby the government would have shouldered losses on risky assets from the bank's takeover of Merrill Lynch.
The fee, which comes after weeks of haggling, will be paid to the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. It's part of a larger move by Bank of America to get out from under the government's thumb.
Bank of America is paying the fee to exit an arrangement in which the government had promised to cover $118 billion in risky assets Bank of America acquired in the Merrill Lynch deal earlier this year. The arrangement was never used, but the government has argued that the bank benefited from the promise of protection.
By ending the arrangement, Bank of America will be able to avoid costly fees. It would have had to pay Treasury about $320 million a year in dividends. In addition, it would have had to pay more than $230 million in fees on the risky assets the government was backstopping.
"We are pleased to resolve this matter and move forward," Kenneth Lewis, chief executive officer of president of the North Carolina-based Bank of America, said in a statement.
Treasury said it was satisfied, too.
"It's an encouraging sign of increased stability in the financial system that Bank of America was able to move ahead without the extraordinary assistance that the government was willing to provide through this asset guarantee arrangement," said Treasury spokesman Andrew Williams. "And taxpayers will receive $425 million in fees for being willing to provide this support."
Bank of America has received a total of $45 billion from the Treasury's $700 billion financial bailout pot, which is financed by taxpayers.
The company says it wants to repay $20 billion of that money, which would remove the company from a list of firms that have received "exceptional" assistance from the government.
Such companies are subject to greater government scrutiny, including having to provide plans outlining compensation packages for their highest-paid employees. The Obama administration's pay czar, Kenneth Feinberg, has the power to veto them.