It's hard not to be somewhat encouraged by the announcement that Bank of America has reached a deal with Treasury to repay the $45 billion in "exceptional assistance" it received last fall and winter. BofA was one of two problem megabanks (the other being Citigroup) to receive such a mega-bailout, and at times looked like it would be years before it returned the cash. For both substantive and political reasons, the administration has good reason to breathe a little easier. (And, to its credit, it negotiated a pretty tough deal with the bank. While the political incentive might have been to agree to whatever terms would let BofA repay the loan quickly, Treasury insisted that the bank raise a big chunk of capital as a kind of insurance policy against future losses.)
Still, it's hard to get too excited about this milestone. In some respects, it's tough to see what the BofA repayment proves, except that if you were a badly-run commercial bank that had the good fortune of merging with a big investment bank just before a massive run-up in financial asset prices, then you're probably going to look relatively healthy before too long even if you're lending business still stinks.
Which basically describes BofA's situation. The strengthening of its financial position in recent months is almost entirely a function of its merger with Merrill Lynch in January, and Merrill's success is almost entirely a function of having placed a lot of speculative bets at a time when the financial markets were recovering rapidly (i.e., March through the present). But BofA's core business of providing loans to businesses and consumers still looks pretty unsightly, and it's hard to see how it improves in the near future. As Journal reports today: "While Bank of America is struggling to overcome recessionary pressures, which have caused loan losses to balloon, its $6.47 billion profit through the end of September was down just 12% from a year earlier." The Times adds: "Bank of America is once again making money, in large part through Wall Street businesses like trading stocks and bonds, rather than by making loans."
So, yes, let's be thankful that BofA will no longer be a ward of the state (something that Citigroup, which also has a Merrill-style proprietary trading arm, hasn't managed.) But let's not kid ourselves--both that bank and the financial sector as a whole are still dealing with daunting problems.