Bank of America nears govt aid, Citigroup shares drop

By Karey Wutkowski and Jonathan Stempel

WASHINGTON/NEW YORK (Reuters) - Bank of America Corp may receive a $15 billion government infusion to help absorb Merrill Lynch, but shares of the bank and Citigroup Inc tumbled on Thursday on worries over their ability to handle soaring credit losses.

Both lenders face mounting pressure from investors that they can manage a surge in bad loans caused by a deep economic recession.

The two companies will offer more details on Friday. Citigroup is reporting fourth-quarter results at 6 a.m. EST, and Bank of America an hour later. Late Thursday, Bank of America said it was moving up its release from January 20. Citigroup was originally set for January 22.

Funds for Bank of America would come from the Treasury Department's Troubled Asset Relief Program (TARP), and supplement a prior $25 billion infusion, a financial policy source familiar with the talks said.

U.S. President George W. Bush and President-elect Barack Obama have signed off on aid for the largest U.S. bank, which is expected to include government guarantees, the source said.

Bank of America sought the aid to absorb growing credit losses at Merrill, which it bought on January 1. CNBC television estimated the guarantee at $100 billion to $200 billion. Both Bank of America and Treasury declined to comment.

Citigroup is expected to post a fifth straight multibillion-dollar quarterly loss, with analysts expecting a loss of $1.32 per share, excluding items.

The bank is also expected to unveil a plan to significantly shrink its balance sheet and business model, a source has said. It has received $45 billion in TARP money.

Bank of America is expected to post a quarterly profit of 19 cents per share, according to the average analyst expectation, but some analysts look for a loss.

'WARDS OF THE STATE'

The deep recession could further erode capital, and analysts have raised the specter that both Bank of America and Citigroup could be nationalized at taxpayer expense.

That would follow similar moves involving mortgage finance companies Fannie Mae and Freddie Mac and banks in Great Britain and Iceland.

Meanwhile, Ireland's government nationalized Anglo Irish Bank Corp Plc on Thursday.

Investors worry that soaring losses from consumer and business loans will require further federal assistance.

"They both will likely become wards of the state," said Doug Kass, who heads the hedge fund Seabreeze Partners Management, referring to Bank of America and Citigroup. "They are too big to fail."