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Economy

B of A Deathwatch: Moves Risky Derivatives from Holding Co to Taxpayer-Backstopped Depositors

2011-10-18

Is there a category for Great Looters?

If you have any doubt that Bank of America is in trouble, this development should settle it. Im late to this important story broken this morning by Bob Ivry of Bloomberg, but both Bill Black (who I interviewed just now) and I see this as a desperate (or at the very best, remarkably inept) move by Bank of Americas management.

The short form via Bloomberg:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation

Bank of Americas holding company the parent of both the retail bank and the Merrill Lynch securities unit held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgans deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firms $79 trillion of notional derivatives, the OCC data show.

Now you would expect this move to be driven by adverse selection, that it, that BofA would move its WORST derivatives, that is, the ones that were riskiest or otherwise had high collateral posting requirements, to the sub. Bill Black confirmed that even though the details were sketchy, this is precisely what took place.

Posted by:Eohippus Phater7165

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