business

By David Lawsky

SAN FRANCISCO (Reuters) - High-end computer and software company Sun Microsystems (JAVA.O) posted better-than-expected results as a strong software and open storage business cushioned declining overall sales, and its shares rose.

The company, which like rivals Dell Inc (DELL.O) and EMC Corp (EMC.N) is struggling with diminishing tech spending, posted an 11 percent decline in quarterly revenue.

Gross margins shrank to 41.9 percent from 48.5 percent a year ago.

Sun sold more storage products than analysts had expected.

"This is an expectations game and things weren't as bad as people thought, but trends are still eroding," said Brent Bracelin of Pacific Crest Securities. "It doesn't mean there is any sign of improvement, year over year."

Excluding restructuring and related impairment charges and including stock-based compensation and amortization charges, Sun posted a loss of 1 cent per share in the fiscal second quarter ended December 28, versus a consensus loss of 9 cents, according to Reuters Estimates.

Sun reported a profit of 15 cents per share, excluding charges for amortization and stock compensation, which Bracelin took as a positive sign.

"The company returned to profitability, while people were looking for it to lose money again," he said.

Sun again declined to give an outlook for the current quarter.

The company -- which is shedding up to 6,000 jobs or 18 percent of its workforce -- said it had a net loss of $209 million, or 28 cents a share for the quarter, compared with a net profit of $260 million, or 31 cents a share, a year ago.

The company reported revenue of $3.22 billion, compared with $3.62 billion one year ago.

At the end of the second quarter total software billings rose 21 percent year over year, and is now at an about $600 million annual run rate.

Billings on open storage products climbed by the same percentage to an annual run rate of about $100 million.

In contrast, total sales of server systems fell 9 percent in the quarter by volume, to about 80,000 units.

Sun Microsystems shares were up 6.5 percent in after-hours trading at $4.25, after closing at $3.99 on the Nasdaq.

The shares embarked on a steady downtrend from May, when the company surprised investors with a quarterly net loss.

Goldman Sachs had added Sun to its "sell" list and cut its price target, saying the company's lack of a diversified portfolio put it at a competitive disadvantage.

Sun offers much of its software free in an open model, including a database and an office suite, seeking to foster its broad adoption. It sells other software, along with service and hardware.

Like much of the industry, the company is now struggling to slash costs as tech spending dissipates globally. It said in November it would cut 5,000 to 6,000 jobs, or 15 to 18 percent of its workforce, as part of a plan to save $700 million to $800 million a year.

Most of the Santa Clara, California-based company's competitors have similar plans. Sun competes against International Business Machines (IBM.N), Hewlett-Packard Co (HPQ.N) and Dell Inc (DELL.O) in the sale of server computer systems. It competes against EMC as a maker of data storage equipment.

Early this year, Sun acquired Q-Layer, a "cloud computing" company that does off-site storage.

source : Reuters

By Charles Penty and Katherine Burton

Banco Santander SA will offer 1.38 billion euros ($1.82 billion) to clients who lost money with Bernard Madoff, a settlement that may pressure banks worldwide to reimburse customers blindsided by the alleged Ponzi scheme.

Spain’s largest bank said yesterday it also will close seven hedge funds run by its Optimal Investment Services unit after the Madoff scandal triggered a surge in withdrawal requests. It didn’t disclose the size of the funds or amounts clients had sought to get back.

Santander, which said Dec. 14 it had 2.33 billion euros in client funds with Madoff, was sued in U.S. federal court in Miami by investors who accused the bank of failing to adequately vet Madoff. Its settlement offer may elicit similar proposals from firms such as Bank Medici AG, the Vienna-based firm that funneled $3.2 billion to Madoff, the most among European banks, and Geneva-based Union Bancaire Privee, with $700 million.

“Other banks are going to see this and customers are going to say, ‘What about us? Are you going to make a similar offer to us?’ ” said Marvin Pickholz, a litigation attorney at Duane Morris in New York and former U.S. Securities and Exchange Commission enforcement official.

Santander, based in the city of the same name, proposed issuing preferred shares with an annual payout of 2 percent to compensate clients, a bank spokesman said yesterday in a telephone interview. The bank would have the option to buy back the securities after 10 years, he said. Santander, which reports earnings on Feb. 5, will take a charge to 2008 pretax profit of 500 million euros to cover the settlement.

The company “acted at all times with due diligence” and “in accordance with all applicable laws,” Santander said in a statement.

Madoff, 70, was arrested Dec. 11 after allegedly confessing to his sons that his investment business was a fraud and cost clients as much $50 billion. In a Ponzi scheme, early investors are paid with money from subsequent victims.

‘Right Direction’

European banks sold Madoff-run investments to their clients and provided loans to hedge funds that aggregated money for the New York financier. Santander branch managers channeled customers into Madoff funds through Optimal, according to lawyers for the investors.

The offer is “a step in the right direction,” said Javier Cremades, chairman of Madrid-based law firm Cremades & Calvo- Sotelo, which filed the suit with U.S. partner Labaton Sucharow LLP. Still, “at first sight, it looks insufficient,” he said.

Investors who accept the offer wouldn’t be able to sue the bank over its Madoff investments, said Pickholz.

“It is obviously good public relations for the bank, and it is also very good legal judgment on their part,” he said.

Santander’s Geneva-based Optimal said in a separate statement it plans to shut down the Arbitrage, Multi-Strategy, European Opportunities, US Opportunities, Asian Opportunities, Global Opportunities and Global Trading funds.

source : Bloomberg.com

By Justin Baer in New York

Delta Air Lines yesterday delivered a revenue forecast that appeared to confirm fears that carriers will confront a slump in air-travel demand this year.

In its first reporting quarter since merging with Northwest Airlines to create the world's biggest carrier by traffic, the company said that passenger unit revenue - an industry measurement that factors how well an airline fills aeroplane seats and how much it charges for tickets - would fall 4 per cent this year.

"The recession is clearly causing leisure customers to rethink or postpone some of their discretionary travel decisions," Ed Bastian, Delta's president, said. "On the corporate side, companies continue to trim travel budgets and as a result business travellers are purchasing their tickets in advance to take advantage of lower fares."

However, Delta executives argued that demand would improve as the year progressed, noting the first quarter is normally the industry's weakest.

"Despite the difficult economic environment, we expect to be solidly profit-able in 2009 driven by lower fuel costs, capacity discipline, and merger synergies," said Richard Anderson, chief executive. "Delta people have a great track record for achieving their goals, and I am confident that 2009 will be another successful year."

Delta said it had made a fourth-quarter net loss, which includes two months of Northwest results, of $1.4bn, or $2.11 a share, due to costs from employee stock awards and jet-fuel hedges.

The airline paid more than $900m in stock to employees following the merger, and recorded a $91m loss to mark down the value of fuel-hedging contracts. Excluding those items as well as one-time costs from the Northwest deal, the loss still missed many analysts' estimates.

Delta lost $70m, or 18 cents per share, as a standalone company in the fourth quarter of 2007. Including Northwest in both periods, revenue changed little from a year earlier, slipping to $7.77bn from $7.79bn. Passenger revenue - the amount Delta collects from ticket sales - fell 1 per cent.

Delta plans to shed as much as 8 per cent of its capacity this year as it removes 40-50 aircraft from its fleet. The company also initiated a second voluntary workforce reduction plan this month.

The October deal with Northwest created the world's largest carrier, promising $2bn in annual synergies and a widening advantage over its peers on both costs and revenue.

Executives reiterated those goals yesterday, even as merger expenses and accounting charges overwhelmed any evidence of early progress in the fourth quarter.

Mr Anderson's optimism was not shared by investors. By midday in New York, Delta's shares had plunged 17 per cent.

source : FT.com

The head of the agency told a Senate committee investigating the SEC's role in the Madoff scandal that it lacks the resources to follow up on all fraud tips.

by :Julian Cummings
The Securities and Exchange Commission's director of enforcement told a Senate committee Tuesday that the agency lacks the resources to pursue all the leads and tips about possible fraud that come to it.

"The enforcement division receives hundreds of thousands of tips each year (and) while we appreciate and examine every lead we receive, we simply do not have the resources to investigate them all," Linda Thomsen said in her prepared remarks to the Senate Banking Committee.

The hearing was looking into the role the SEC played in investigating Bernard L. Madoff's alleged $50 billion Ponzi scheme. Thomsen appeared along with Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations.

Thomsen, citing an ongoing investigation, largely avoided direct responses to committee members' questions, which included why Madoff was not investigated by the SEC earlier, despite red flags sent to the commission by tipster Henry Markopolos in 2006.

She said the SEC's inspector general is looking into who saw the information provided by Markopolos and whether that investigation was conducted correctly. "Some of the conduct in the prior investigation may itself have resulted in crimes," she said.

The fiery exchange of the day occurred after Thomsen told Sen. Robert Menendez of New Jersey, "We don't turn a blind eye to fraud. If we see it and we suspect it, we pursue it. We don't want fraudsters out there."

Menendez responded loudly, "So, Mr. Madoff was smarter than all of you?"

Also appearing before the committee was John C. Coffee Jr., a professor at Columbia University Law School; Dr. Henry A. Backe Jr., a Madoff investor; Stephen Luparello, interim CEO of FINRA, the nation's largest independent regulator of securities firms; and Stephen P. Harbeck of the Securities Investor Protection Corp.

Thomsen and Luparello agreed with a request from the committee's chairman, Sen. Chris Dodd of Connecticut, to come back every three months to provide updates on the status of regulations and safeguards to avoid fraud.

Madoff faces felony securities fraud charges for allegedly operating a multibillion-dollar Ponzi scheme that resulted in high-profile charities, celebrities, and many other investors losing their investments.

In a Ponzi scheme, money coming in from new investors is paid out to earlier investors as "profits," creating the appearance of a profitable fund.

source : CNNmoney

By Lucia Mutikani

WASHINGTON (Reuters) - Consumer confidence plumbed historic lows in January and home prices fell at a record pace in November, data showed on Tuesday, highlighting a rapidly deteriorating economy.

Mounting job losses as the year-long recession deepens are piling misery on consumers already grappling with sharp declines in wealth following the collapse of the U.S. housing and stock markets.

Economists say the recession is on track to be the longest, if not the deepest, since the Great Depression.

The Conference Board, an industry group, said its sentiment index fell to 37.7 this month from an upwardly revised 38.6 in December. Wall Street analysts had forecast the index would climb to 39 from a previously reported reading of 38.

"Consumers remain quite pessimistic about the state of the economy," said Lynn Franco, director of The Conference Board Research Center. "Until we begin to see considerable improvements in the expectations index, we can't say the worst of times are behind us."

U.S. stocks brushed aside the grim economic data as some companies reported earnings above market expectations. The Dow Jones industrial average ended up 58.70 points at 8,174.73.

Treasury debt prices, which tend to benefit from news of worsening economic conditions, tapped a safe-haven bid from the data and were also buoyed by speculation the Federal Reserve would announce a purchasing program of long-dated government bonds at the end of its policy meeting on Wednesday.

Suggesting the economic rout was far from over, the Conference Board's expectations index dropped to 43.0 in January from 44.2 the previous month.

"The adverse feedback loop from extremely tight credit conditions to reduced asset prices and ... reductions in demand for labor services continued to spin at an alarming velocity in January," said Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts.

"The continued ferocity of this negative feedback process highlights the policy challenge that lies ahead."

President Barack Obama, pushing for a $825 billion stimulus package for the distressed economy, on Tuesday expressed confidence the plan would get bipartisan support.

A surge in unemployment and an accompanying rise in job insecurity has led many consumers to defer decisions to buy homes, while costing others theirs. This has resulted in a huge inventory of homes for sale, further depressing prices.

Data from an S&P/Case-Shiller report on Tuesday showed U.S. home prices plunged a record 18.2 percent in November from a year earlier.

Prices in 20 metropolitan areas tracked by the Home Price Index fell 2.2 percent from October. Prices in 11 metro areas fell at record rates from a year earlier, while 14 cities had drops of more than 10 percent.

Analysts said while the report illustrated continued distress in the housing sector, it did not capture measures taken late last year to lower mortgage rates.

"We're still looking at fourth-quarter numbers when the credit crisis was in full swing and before the Federal Reserve took steps to push mortgage rates down," said Gary Thayer, senior economist at Wachovia Securities in St. Louis. "We'll have to watch very closely during the next few months to see if we get a recovery in housing started."

Analysts say restoring stability to the housing market is crucial for the economy's recovery.

The fall in house prices has crimped consumer spending, which accounts for about two thirds of U.S. economic activity.

But housing's downward spiral shows little sign of reaching a bottom soon, with inventories remaining elevated.

The National Association of Realtors said on Monday sales of existing homes rose in December, driven mainly by distressed sales, which saw prices falling on an annual basis by the biggest margin in over 40 years.

"I wouldn't take a lot of comfort in the existing home sales number yesterday because a lot of them were short sales and foreclosed homes," said Keith Hembre, chief economist at FAF Advisors in Minneapolis. "Housing will shave close to three-quarters of a percentage point in fourth-quarter GDP."

The housing meltdown meant retailers continued to suffer sharp falls in sales last week. The International Council of Shopping Centers said sales fell 2.4 percent on a year-over-year basis, the seventh straight weekly decline.

The Fed, which started its two-day meeting on Tuesday, is expected to hold its target range for the key overnight federal funds rate steady at zero to 0.25 percent.

Markets, however, will watch out for further announcements on purchases of mortgage securities or even long-dated U.S. Treasuries.

(Additional reporting by Alister Bull in Washington, Pedro Nicolaci da Costa, Ellen Freilich and Julie Haviv in New York. Writing by Lucia Mutikani; Editing by Leslie Adler)

source : Reuters UK

One more Ponzi scheme has been discovered by the US authorities. 37-year old Nicholas Cosmo, CEO of Agape World Inc., has turned himself in late Monday after FBI and US Postal Inspection Service officials raided the financing firm's Long Island, New York headquarters. According to Nicholas Cosmo his investment firm has defrauded about 1500 investors and stolen about 380 million dollars (288 million euros). However, speaking with Long Island Business News, a few hours after the arrest Nicholas Cosmo has deflected accusations.

Long Island paper also reported that Cosmo has founded his business 9 years ago in 2000 when he was just broken out of federal prison where he served time for defrauding investors of a Long Island securities dealer. The company was offering its investors to get up to 14% in as little as 72 days, according to the Long Island paper.

Up to that date the largest scam was the pyramid of Bernard Madoff which has been disclosed after the owner, Madoff, has told one of its executives about $50 billion he had scammed. At the moment Madoff is under house arrest awaiting an indictment.

source :Ecommerce Journal

By Leah Schnurr

Wall Street was poised for a higher open on Wednesday, buoyed by a solid outlook from IBM, while investors were looking for measures from President Barack Obama to keep the year-long recession from worsening.

Dow component International Business Machines Corp (IBM.N: Quote, Profile, Research) could provide a boost after the world's top technology services firm posted quarterly profit and a 2009 profit outlook that surpassed expectations. For details, see [ID:nN20268352].

Shares of IBM were up 4.2 percent at $85.45 in premarket trading.

"IBM's guidance painted a rosy picture which the market's going to hang their hat on today," said Andre Bakhos, president of Princeton Financial Group in Princeton in New Jersey.

"With the inaugural pomp and circumstance being over, President Obama will be rolling up his sleeves to work on bank rescue plans and there is a little optimism that under the new administration, something magical can come out."

The U.S. stock market had ushered in the Obama presidency with a record Inauguration Day drop on Tuesday amid fresh signs the global bank crisis was far from over. Now investors were watching for maneuvers from the new president, who has vowed bold and swift action to deal with the economic downturn.

Obama will meet with his economic advisors, who are working with the Democratic-led Congress on an $825 billion fiscal stimulus package. [ID:nN20421893].

S&P 500 futures SPc1 were up 6.10 points and above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures DJc1 were up 48 points, and Nasdaq 100 NDc1 futures were up 3.25 points.

Tuesday's decline for the Dow marked the largest point and percentage drop for the index since Dec. 1, 2008, and the first time the Dow has been below 8,000 since Nov. 20, 2008.

Although the broad S&P 500 has rebounded from its Nov. 21 intraday low, the broad index has fallen 10.9 percent this year on worries about the deepening global recession.

Investors will also be watching a hearing by the Senate Finance Committee on the nomination of Timothy Geithner to be Treasury secretary.

Wall Street had initially cheered Obama's choice of Geithner but the nomination has since come under controversy and Geithner is expected to face questions about his past failure to pay some taxes. [ID:nN20429629].

Among the morning's round of earnings results, diversified manufacturer United Technologies Corp (UTX.N: Quote, Profile, Research) posted a rise in profit as revenue from maintenance of its products offset slowing orders for new equipment.
The Financial Select Sector SPDR XLF.P rose, snapping a five-day losing streak the day after a sell-off in banks led the markets lower. JPMorgan Chase (JPM.N: Quote, Profile, Research) was up 2.9 percent at $18.60 before the opening bell, while Bank of America (BAC.N: Quote, Profile, Research) rose 3.7 percent to $5.29.

However, Bakhos noted that the sector remains plagued by fears of further losses at banks and the possibility they will have to raise more capital.

Analysts also said expectations for the earnings season overall remain low.

But the tech sector saw another bright spot when Ericsson (ERICb.ST: Quote, Profile, Research), the world's top mobile telecom equipment maker, posted better-than-expected earnings, although the company promised deeper savings, including 5,000 job cuts. [ID:nLL732625].

Wall Street will get a further look at how the tech sector is faring when iPod and iPhone maker Apple Inc (AAPL.O: Quote, Profile, Research) reports quarterly results after the bell. (Editing by Chizu Nomiyama)

source : Reuters UK

By JORDAN ROBERTSON

In what promises to be a dismal year for tech spending, IBM Corp. packed a wallop of a surprise with its 2009 profit guidance: the numbers were so far ahead of Wall Street's forecast they were initially met with disbelief.

The Armonk, N.Y.-based company predicted at least $9.20 per share in profit in 2009, a full 45 cents per share better than the average estimate of analysts polled by Thomson Reuters. The forecast is an extremely bullish statement by IBM. It reflects the company's belief that it can outmaneuver the financial crisis by focusing on services and software deals that carry big profit margins, but also help businesses cut costs by offloading some of their tech chores.

IBM revealed the rosy forecast Tuesday as it reported profit for the fourth quarter of 2008 that also sailed past analyst estimates, while sales fell short.

IBM's net income for the period was $4.4 billion, or $3.28 per share. That amounted to a 12 percent profit increase from $3.95 billion, or $2.80 per share, in the same period a year earlier.

Analysts were expecting IBM to earn $3.03 per share this time.

IBM shares jumped 4 percent in extended trading.

"To be honest, I didn't believe they could show something like this — I think the results they posted were stellar," said Peter Misek, an analyst with Canaccord Adams. "They just executed really well — really, really, really well."

Analysts had been expecting IBM to be hurt worse by its heavy dose of sales to big banks and other customers devastated by the economic downturn. Instead, IBM's results show that while the company has seen some sales vaporize, it is still able to wring out better profits because of aggressive cost-cutting and by focusing only on the most profitable deals.

One key measure of profitability — IBM's gross profit margin — expanded to 47.9 percent of revenue, three percentage points better than the year-ago period. IBM credits its services business with leading the gain.

The higher profits came even as IBM's revenue fell 6 percent to $27 billion, short of the $28.1 billion analysts were expecting. IBM said revenue would have decreased only 1 percent were it not for currency fluctuations, but sales were down in all major geographic areas.

Revenue in services, IBM's largest business segment, dropped 4 percent, but IBM was able to ink $17.2 billion in new services contracts. That was a healthy showing that demonstrates companies are still forking out for outsourcing and other technical support contracts, which are often viewed as money-savers in the long run.

Hardware revenue fell 18 percent. Mainframe revenue fell 6 percent, and sales of lower-end servers based on industry-standard processors fell 32 percent.

Weakness in hardware sales was expected, since companies don't buy as much new machinery when times get tough. But even struggling businesses generally keep ponying up for the services contracts they have locked into, since many of those arrangements are for vital parts of the business, like managing their billing or maintaining the databases.

Rick Hanna, an equity analyst with Morningstar Inc., said he is concerned about the slowdown in some of IBM's hardware sales, since having IBM machines inside a business helps sell software and other services. Still, Hanna said he was "very, very impressed" with IBM's ability to improve profit margins despite the grisly economic landscape.

"When I was reading through it my first comment was 'wow,'" he said. "It really speaks to them developing their high-value-added strategy and executing it. ... You've got to recognize that this isn't your father's IBM. It's not the one that's so hardware-dependent. Software and services tend to be more resilient, and they're proving that."

IBM did not announce widespread job cuts, which some analysts believed were imminent, but repeated that it is still doing targeted layoffs as part of ongoing cost-cutting. IBM lays off thousands of workers each year, but overall head count keeps rising as the company adds jobs in faster-growing regions or more profitable divisions.

IBM employed more than 400,000 people at the end of 2008, the first time in more than 20 years the company's work force has swelled that big. The last time IBM employed a work force that size, a severe downturn caused the company to jettison many of those workers in waves of brutal downsizing.

IBM shed more than 150,000 workers in the 1990s as the company racked up nearly $16 billion in losses over a five-year stretch.

For all of 2008, IBM earned $12.3 billion, or $8.93 per share. That represents an 18 percent jump from a year ago. Sales were $103.6 billion, a 5 percent increase.

The earnings report came out after IBM shares closed at $81.98, down $2.94, or 3.5 percent. The stock jumped to $85.30 in after-hours trading.

source : Assosiated Press

By Nicholas Johnston and Laura Litvan

President-elect Barack Obama won his first legislative test when the U.S. Senate voted to allow the use of $350 billion in financial-rescue funds. 

Senators yesterday defeated, 52-42, a resolution that would have prevented the release of the second half of the $700 billion in the Troubled Asset Relief Program, enacted last fall to boost the sagging U.S. economy. President George W. Bush sought the release of the money at Obama’s request. 

“I know this wasn’t an easy vote because of the frustration so many of us share about how the first half of this plan was implemented,” Obama said in a statement after the vote. He promised to set strict pay limits on executives at companies receiving funds, provide more loans to small businesses and ensure “taxpayers can see where their money is spent.” 

Lawmakers have objected to the outgoing Bush administration’s use of the first $350 billion of the money, saying the government failed to set limits on banks that received payments, including Citigroup Inc. and JPMorgan Chase & Co. 

Louisiana Republican David Vitter, who introduced the Senate resolution, criticized the “complete lack of accountability in the TARP program” in urging senators to block release of the remaining funds. “If we don’t pass this resolution of disapproval, nothing will change in the TARP program,” he said. 

Democratic Dissent 

Obama has faced some Democratic dissent this month over tax cuts he’s seeking and his nomination of Leon Panetta as his intelligence chief. Obama visited the Capitol and met with Senate Democrats behind closed doors this week to push for release of the additional rescue funds. 

Eight Democrats and one independent joined most Republicans in voting to block the funds, while six Republicans joined Democrats in voting to allow release of the money. Arizona Republican John McCain, who as a presidential candidate backed creation of the TARP program, voted against the release. 

The vote came after Obama’s economic adviser, Lawrence Summers, told Congress that up to $100 billion of the funds will be used to ease the housing crisis. Lawmakers in both parties have said they want more of the money used to help homeowners at risk of defaulting on their mortgages. 

“This program must promote the stability of the financial system and increase lending, preserve home ownership, promote jobs and economic recovery” and be used in a manner accountable to the public, Summers wrote in a letter to Senate Majority Leader Harry Reid. 

California Democrat Barbara Boxer said she was voting to allow use of the money because Obama will run the program differently. “If the Bush administration was going to continue to dole out this money, I wouldn’t give them three dollars, let alone $350 billion,” Boxer said. 

Under the rescue legislation, the Treasury Department can use the money unless both the Senate and the House pass a resolution within 15 days that rejects Bush’s Jan. 12 request for the second $350 billion. If Congress voted to block use of the money, the president could veto the resolution.
 source  : Bloomberg

Bank of America Could Get Billions in Additional Government Money

The U.S. government is nearing a deal to inject Bank of America Corp. with billions of dollars in more aid, The Wall Street Journal reported late Wednesday, citing people familiar with the situation.

The nation's biggest bank by assets acquired Merrill Lynch & Co. on Jan. 1. Bank of America received $25 billion from the government's $700 financial rescue fund, including $10 billion that would have gone to Merrill had it not been acquired.

Bank of America and the U.S. Treasury spokesmen declined to comment in response to inquiries made by The Associated Press.

The Journal, citing a person familiar with the talks, reported that the discussion between the government and Bank of America began in mid-December when the Charlotte, N.C., bank said it wasn't likely to go through with its acquisition of New York-based Merrill because the losses at the troubled company were larger than expected.

Treasury Department officials grew concerned that the stability of the U.S. financial markets would be at risk if the deal fell apart, the newspaper reported. Officials said they would work on "formulation of a plan" that includes new money from the government, the Journal said, citing the person familiar with the talks.

Details of a possible agreement, the Journal said, are likely to come out with the company's quarterly results, which are expected Tuesday.


The Journal reported that any possible plan could shield Bank of America from the bad assets on Merrill's books. One person familiar with the situation told the paper that there could be a limit to how much Bank of America might have to be liable for, with the government covering the remainder.

Banks are struggling to mend their balance sheets after bad bets on mortgages spread to other forms of debt. Some analysts and economist are saying the U.S. government will have to spend far more than the $700 billion it has already approved to aid the financial industry. Only the first half of the $700 billion has been allocated and Congress has not released the second half of the fund.

source :ABC news