From the link:
New York University Professor Nouriel Roubini, who foresaw the credit crisis, heightened investors’ panic when Bloomberg reported on Jan. 20 that he estimated credit losses for U.S. firms could hit $3.6 trillion. Thus, the U.S. banking system—with just $1.4 trillion in capital—is “effectively insolvent,” Roubini said, according to Bloomberg. “The problems of Citi, Bank of America, and others suggest the system is bankrupt,” he added.
The supposed cure for this is the federal government’s $700 billion Troubled Assets Relief Program, or TARP, enacted late last year. However, a growing number of investors and analysts warn that the TARP program may come at a large cost to bank shareholders.
Banks get TARP relief only by giving the federal government preferred shares. On Jan. 16, BofA issued the government another $20 billion in preferred stock that pays an 8% dividend. In exchange, the government agreed to limit future losses on $118 billion in BofA investments, including a large amount of the portfolio acquired through BofA’s buyout of Merrill Lynch.
“Increased support by the U.S. government provides protection on certain problem assets,” notes Deutsche Bank (DB) analyst Mike Mayo, but “it also comes with more restrictions on [BofA] as a whole.”