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December 4, 2009

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US bank to repay taxpayer bailouts

BANK of America Corp is to repay US$45 billion of taxpayer bailout funds, a move that could free the top United States lender from pay curbs as it looks to hire a new CEO, but also make it more vulnerable to further economic shocks.

The surprise agreement on Wednesday marks a critical victory for outgoing Chief Executive Kenneth Lewis who is expected to step down from his post by the end of the year, but has said repaying the government was something he wanted to accomplish before then.

The deal is also a shot in the arm for the US Treasury, which has been under fire for the hundreds of billions in taxpayer dollars it has shelled out to corporate America during the financial crisis.

The Charlotte, North Carolina-based banking leader is expected to repay its Troubled Asset Relief Program funds over the next few days.


A US Treasury official called the repayment a step in the right direction, adding that replacing Treasury investments with private capital would provide a boost to confidence.

The deal was negotiated by BofA's chief risk officer, Greg Curl, sources said. Curl has been considered a leading contender to replace Lewis.

Curl played an instrumental role in gaining the government's permission to repay the TARP funds, a move that could bolster his chances as a contender for the CEO position, according to financial industry sources.

The announcement comes as the bank has bristled under US pay czar Kenneth Feinberg's curbs for senior management compensation. It has repeatedly expressed its interest in repaying the funds as soon as possible.

Feinberg called the bank's plan to repay TARP money "very satisfying" and said it was "exactly the goal" of his oversight.

While the agreement sent BofA shares higher after-hours, it comes with a degree of risk. Many investors remain concerned that without the government's backing, the bank could struggle again if the economy were to take a turn for the worse.


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