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Bank Of America Dumps Hedge Funds

American-bankNew York (HedgeCo.Net) -Bank of America’s shares fell 1.5% to $16.43 in trading yesterday after the bank severed ties with approximately 150 hedge funds in its prime brokerage group, The Street reported today.

Bloomberg says: “The second-largest U.S. bank made the decisions based on which relationships were profitable enough to keep amid new capital and liquidity rules, according to two people familiar with the bank’s strategy, who asked not to be named because details are private. The cuts included the majority of its quantitative hedge fund customers, or those that use computer programs to trade.”

Bank of America has been the subject of several lawsuits and investigations regarding both mortgages and financial disclosures dating back to the financial crisis. The Bank was allowed a 30 month waiver from new restrictions on selling shares in hedge funds and other private offerings.

The Securities and Exchange Commission waived the ban on the bank selling shares in hedge funds, with the requirement that Bank Of America take appropriate remedial actions such as tightening internal control and removing employees found guilty.

Bank of America received $20 billion in the federal bailout from the U.S. government through the Troubled Asset Relief Program (TARP) on January 16, 2009, and a guarantee of $118 billion in potential losses at the company. This was in addition to the $25 billion given to them in the Fall 2008 through TARP. The additional payment was part of a deal with the U.S. government to preserve Bank of America’s merger with the troubled investment firm Merrill Lynch. 

Since then, members of the U.S. Congress have expressed considerable concern about how this money has been spent, especially since some of the recipients have been accused of misusing the bailout money.

Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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