B. Of A. Sale May Be Short-Lived Win For Treasury

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MarketWatch

March 4, 2010 Thursday 11:50 AM EST

SECTION: NEWS & COMMENTARY; Commentary; MarketWatch First Take

LENGTH: 313 words

HEADLINE: B. of A. sale may be short-lived win for Treasury

BYLINE: MarketWatch

NEW YORK (MarketWatch) — The U.S. Treasury Department’s record windfall from the sale of Bank of America Corp. warrants appears to be another sign that the bank crisis is receding.

But what if it’s not? Commercial loans are hanging over the banking system like Sarah Palin’s bad jokes cast a pall on late-night TV. More than half of commercial loans are expected to be underwater by year’s end.

Much of those loans will hit smaller, regional banks, but big banks such as Bank of America (BAC) will feel the brunt, too. Congressional Oversight Committee Chairman Elizabeth Warren has said the blow could be devastating to an already-staggered banking system.

The U.S. made $1.5 billion from the sale of its warrants, which give the holder the right to buy Bank of America shares at $13.30. Shares of the Charlotte, N.C.-based bank were trading at $16.39 in the morning session. The return from the sale is more than 45% better than expected by the Congressional Oversight Panel for TARP.

Before putting that money to back into the general fund, the government might consider expanding bailout cash to smaller banks. Compass Bank, East West Bank Inc. (EWBC) were identified in a recent TheStreet.com report as having the most commercial real-estate loans on the books.

The number of troubled banks on the Federal Deposit Insurance Corp. watch list swelled to 702 at the end of 2009. The FDIC is basically broke; it’s had to collect premiums in advance to cover the shortfall. There’s a possibility it will have to tap its credit line at the Treasury Department if failures continue.

Lawmakers and regulators will need to make a choice. They’ve saved too-big-to-fails such as B. of A. Can the system afford to let their smaller competitors get wiped out?

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