Bank of America, which has already received $25 billion in aid from the federal government, now says it needs additional money or it may not be able to complete its planned acquisition of Merrill Lynch, according to a source familiar with the bank.
The bank is in talks with the Treasury Department about an additional $15 billion, although the terms are still being negotiated, the source said. Bank of America decided it needed more money to finalize the deal because Merrill Lynch's losses proved to be greater than expected during the last quarter of 2008.
U.S. officials are seen as likely to approve the request, rather than risk the failure of the deal, which would send a chill through the financial markets at a time when many banks are already on life support.
"The government has got itself in a position where they have to do something, and they have to help close this deal, so they have to provide additional subsidy to Bank of America," said Simon Johnson, a former economist at the International Monetary Fund and a professor of entrepreneurship at the Massachusetts Institute of Technology's Sloan School of Management.
The money will probably come from the Troubled Assets Relief Program, the $700 billion bailout fund approved by Congress in October.
The new capital injection could be completed within days. Bank of America is scheduled to release its fourth-quarter earnings report Tuesday.
A Bank of America spokesman refused to comment, and Treasury Department officials did not return a call requesting a comment.
In September, Bank of America agreed to acquire Merrill Lynch, which was mired in losses from the subprime mortgage crisis. The deal was valued at about $44 billion.
At the time, Bank of America CEO Kenneth Lewis called the deal "the strategic opportunity of a lifetime" for the company. "Everybody sees this opportunity," he said. "And it flows very well We can do so much more for our clients, both on the retail side and the corporate banking side, with the capabilities Merrill Lynch brings to us."