BofA Gets $20 Billion Infusion; Posts Loss

Updated from 6:53 a.m. EST

The U.S. government said Friday it plans to invest an additional $20 billion in Bank of America (BAC) and provide "protection against the possibility of unusually large losses" on an asset pool of about $118 billion of loans, securities and other assets.

The Treasury and the Federal Deposit Insurance Corp. said the large majority of the assets were assumed by Bank of America from its acquisition of Merrill Lynch. The assets will remain on Bank of America's balance sheet.

Meanwhile, escalating credit losses and significant writedowns drove the bank to report a loss of $2.39 billion, or 48 cents a share, and slash its quarterly dividend to a penny. A year earlier the bank reported a profit of $215 million, or 5 cents a share.

Merrill Lynch, which was acquired by Bank of America last year, posted a loss of $15.31 billion, or $9.62 a share, for the period.

The company reported a profit of $4 billion for the year.

Bank of America will issue preferred shares to the Treasury and FDIC. In addition, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan, a government statement said.

Treasury will invest $20 billion in Bank of America from the Troubled Assets Relief Program in exchange for preferred stock with an 8% dividend. The bank will comply with enhanced executive compensation restrictions and implement a mortgage loan modification program, Treasury said.

The injection of fresh capital will come from the government's $700 billion rescue fund and will be similar to assistance provided in November to another troubled bank, Citigroup(C).