Bank of America Used Govt Funds For Highly Levered, Tax Avoiding Trades

scott

"...BofA decided it would be more lucrative to use its government-backed subsidiary to "finance billions of dollars in controversial trades that helped hedge funds and other clients avoid taxes, according to internal documents and people familiar with the matter."

According to the WSJ which broke the story, BofA had been engaging in a "practice of using funds from its U.S. banking unit to finance transactions by its European investment-banking arm that, among other things" which helped hedge funds avoid taxes on stock dividends, according to the documents and people."

"So just what did BofA use this costless funding for? "Funds from the safeguarded banking entity financed a variety of strategies. At times, billions of dollars in question were earmarked to the dividend-arbitrage strategy, in which banks and brokerage firms help hedge funds and other sophisticated investors avoid or minimize the withholding taxes they pay on stock dividends."

"The employee’s submissions allege that Bank of America’s London-based Merrill Lynch International unit has extended “extreme levels of BANA leverage” to fund “increasingly aggressive and reckless” tax-avoidance trades. The submissions said the practices risked causing the bank “serious financial and reputational damage.”

http://www.zerohedge.com/news/2015-02-11/london-whale-20-bofa-used-government-backed-funds-reckless-extremely-levered-tax-avo

Charles

Great.

Old_Joe

BOA is just exercising their "fiduciary responsibility" to rip off the American citizen, as usual. I'm surprised that anyone finds this in the least way remarkable at this point.

Old_Skeet

Here we go again ...

Remember ... Bear Stearns? They got a margin call they could not meet! And, they about broke the others.

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catch22

Additionally, Dept. of Justice seeks felony/criminal charges against CITI, JPMorgan, Barclays and RBS for currency manipulation.
I don't recall criminal charges being in place before, excepting individuals.

Story link

Charles

@Old_Joe.

BOA is just exercising their "fiduciary responsibility" to rip off the American citizen, as usual. I'm surprised that anyone finds this in the least way remarkable at this point.

Touché!

fundalarm

has nothing to do with fiduciary responsibility.

for those not bored by a bit of legalese who might have heard of total return swaps, matt, as always, simplified the narrative:

here

Old_Joe

@fundalarm- Hi JR! Yeah, I know, that was just a friendly swipe at another poster, who took it in very good grace.

OJ

fundalarm

i will always love you, @Old_Joe despite some difference in our world views

Old_Joe

@fundalarm

scott

Old_Joe said:

BOA is just exercising their "fiduciary responsibility" to rip off the American citizen, as usual. I'm surprised that anyone finds this in the least way remarkable at this point.

You know, people do. People have this view that the problems with the banks were fixed. People want to believe that the banks changed. I mean, it's like the second "Wall Street" movie where Gordon Gekko gets out of prison and people throw money his way again. I've been against Fairholme for ages - there's no real clarity in the sunlight sense on companies like BAC; there's some new thing continually popping up with these banks every few months that in the past would have been considered illegal and punishable. The only clarity that anyone should have is that Too Big To Fail has only gotten worse since 2008 and that the game of "heads I win, tails I win" with the banks continues.

JohnChisum

The banksters feel like they can get away with anything. What we need is a good, citizen inspired bank run.

There are better places to put your money.

heezsafe

Several years ago, when BoA moved their derivatives book into the regular depository accounts division (and the FDIC remained silent), William Black predicted something like this would happen, that it was inevitable.

The criminal banking syndicate--- there...will...be...no...end...to...it.