Put an experienced VC in charge of the TARP funds

News Report: BofA to access more TARP funds

Not that it should come as a complete surprise, but Bank of America (BAC:NYSE) isn’t out of the woods yet. This from Reuters:

Reuters reported that Bank of America Corporation is close to getting billions of dollars more in federal support from taxpayers. As Congress debated the future of the government’s $700-billion financial markets rescue program, that Bank of America has struggled to digest its January 1 buyout of former Wall Street brokerage giant Merrill Lynch & Co. Merrill’s fourth quarter losses exceeded expectations and spurred Bank of America in mid-December to start talking to the U.S. Treasury Department, which is managing the bailout. U.S. Treasury Secretary Henry Paulson was driving the talks out of concern that Bank of America might be unable to complete the buyout, cutting Merrill adrift. The size and terms of any aid that could result are still being finalized, with details expected to be announced with Bank of America’s fourth-quarter earnings, due out January 20.

Someone, somewhere knows the answer to this question:

If Bank of America urgently needs more government support to stay solvent, there’s no chance that BofA’s common shareholders will be receiving good news about their quarterly dividend on January 20th, is there?

According to Google Finance, BofA’s current US$0.32 dividend yields 17% per annum. Yowza. The U.S. government’s TARP program won’t be used to pay common share dividends, will it? On the very day that President-elect is being sworn in?

In the venture capital world at least, VCs and venture debt lenders alike generally block dividends to common shareholders while their capital is invested in a specific deal. Perhaps Treasury Secretary Hank Paulson made a mistake when he put a young Goldman alumni in charge of the TARP funds. What TARP really needs is an experienced venture capitalist who is used to managing the needs of cash flow negative companies.

There are some simple rules of VC-land, first principles as it were, and it is high time they were applied to the U.S. government’s own merchant banking program.

(The less obvious question is this: Who needs to play in the venture debt markets if BofA will pay us 17.2% to hold their common shares?)

MRM