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  Date / Time: 2/7/2009 12:50 AM UTC

  Bank of America shares touch multi-decade lows
  

  SAN FRANCISCO (MarketWatch) -- Shares of Bank of America Corp. briefly dropped to their lowest level in more than two decades Thursday on concern the U.S. government may nationalize the banking giant to help stabilize the broader financial system.

  

  The shares slumped as low as $3.77 earlier in the volatile session -- the lowest level since at least 1984, according to FactSet Research data.

  The stock erased losses in afternoon action and closed up 3% at $4.84 after the bank disclosed share purchases by executives.

  The shares were also buoyed by speculation about the possible relaxation of accounting rules that force banks to report the fair market value of their assets each quarter. The Securities and Exchange Commission didn't respond to a phone call seeking comment.

  Shares of Charlotte, N.C.-based Bank of America (BAC:

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  , , ) are trading at a multiple of about 0.19 times their stated book value and half their tangible book value, while the company's market capitalization represents just 3.4% of its deposits, Ladenburg Thalmann analyst Dick Bove pointed out in a note to clients Thursday.

  "These numbers are clear, investors believe that this bank is about to fail and be nationalized," he wrote. "If they believed that it would continue as an operating entity it is unlikely that the bank would be selling at such a low value."

  Bank of America spokesman Scott Silvestri declined to comment.

  Merrill troubles

  Bank of America got a $15 billion investment from the Treasury's Troubled Asset Relief Program last year. Since then the bank's troubles have multiplied and the government has become even more entwined in its affairs.

  Bank of America shares have plunged 67% since it acquired Merrill Lynch at the start of this year. Soon after, the bank reported a $1.8 billion fourth-quarter loss and disclosed that Merrill had lost roughly $15 billion in the period.

  After Bank of America Chief Executive Ken Lewis realized how bad Merrill's situation had become, he flew to Washington, D.C., to tell regulators he was ready to back out of the acquisition, The Wall Street Journal said on Thursday, citing unidentified people close to the executive.

  Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke "forcefully urged" Lewis not to walk away. Two days later during a conference call Bernanke said Bank of America had "no justification" for ditching Merrill, the Journal said.

  A Federal Reserve official warned that if Lewis backed out and Bank of America needed more money from the government later, regulators would think hard about their confidence in the bank's management, the newspaper added, without identifying the official.

  Lewis was also told that the government would consider ousting executives and directors, the Journal reported, citing unidentified people close to the bank.

  After that, Bank of America went through with the deal, but got another $20 billion government investment and protection against losses on $118 billion of troubled assets.

  Government control

  Bank of America and other big banks that received more than $100 billion in government investment are already under pressure to lend more, even though the recession is stunting loan demand and making borrowers less creditworthy.

  On Wednesday, President Barack Obama unveiled executive salary caps of $500,000 a year for financial institutions like Bank of America and Citigroup (C:

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  , , ) that get "extraordinary" help from the government.

  With the government already telling banks how to lend, reportedly ordering acquisitions and capping compensation, some investors may be concluding that institutions have already effectively been taken over by authorities

  Thursday's Wall Street Journal article about Bank of America being forced to complete its Merrill acquisition likely came from an interview with the bank's management, who are keen to show investors that they knew what was going on but had no choice, Bove said.

  "This, to some extent, alleviates the questions concerning management's competence," he added. "It does not take away the belief on the part of investors that the company's woes are so significant that it will fail."

  Alistair Barr is a reporter for MarketWatch in San Francisco.
  Ronald D. Orol is a MarketWatch reporter, based in Washington.
  
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