Municipal Bond Forum
Bondholders and Bank of America
Q
What happens to bondholders if Bank of America is nationalized?
A
James A. Klotz responds:
As with almost every action taken by the federal government, it is impossible to predict the results or the ramifications of government support. Your guess is as good as ours.
When the government assisted AIG, the common stockholders were virtually wiped out, while the bonds continued to pay. Washington Mutual bondholders did not fare as well.
We think the former scenario is most likely, assuming major government ownership in one or more of the large money center banks.
In a joint statement recently by the Fed, Treasury and the FDIC, they emphasized their intention that regardless of any capital assistance program, “banks should remain in private hands.”
Unfortunately, we are in uncharted territory and there is really no way to know for sure.
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