The Banking Doom

Bank of America Corp. (BAC) sank to an 18-year low today (Thursday) on speculation that the company might need government support to resurface from losses it absorbed during its acquisition of Merrill Lynch.

In December, Bank of America said it might abandon plans to acquire Merrill due to more of the company’s toxic assets coming to fruition in the fourth quarter. However, the government’s insistence on closing the deal to bring stability to financial markets bore fruit in the end, and it now appears that the deal was completed at the cost of taxpayers.

This reopens the troubling chapter of the American financial crisis, with its reverberations being felt globally. The FTSE 100 index (^FTSE) of Britain closed down 1.4% at 4,121.11, while Japanese Nikkei (^N225) plunged 4.9 percent, to 8,023.31. The Dow Jones industrial average (^DJI) was trading down 43.49 points, or 0.53% at 8,156.65.

Investors all over the world are now questioning whether the big banks have enough capital to cover soaring credit losses as economic conditions worsen. Although many banks have already received huge bailout funds from the government, they are far from recovery.

Citigroup (C), which received $45 billion, is expected to shrink to about one-third its original size to save the company. Wall Street is now preparing for Citi’s fifth consecutive multibillion-dollar quarterly loss this Friday.

One small silver lining was JP Morgan Chase & Co.’s (JPM) fourth-quarter results, reported this morning, with profit dropping 76% from last year but coming in ahead of the average analyst forecast. The company’s quarterly earnings came in at $702 million, or 7 cents per share, while the consensus estimate was pegged at 2 cents. JP Morgan did however warn that its credit losses were mounting.

While JP Morgan gained modestly to trade up 12 cents to $26.03, B of A recovered some of its early losses to trade down 14% to $8.79. Citi shed 9% to trade to $4.13 at noon on the New York Stock Exchange.

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