Below is a copy of Hank Paulson’s prepared testimony for tomorrow’s (June 16th) hearings which will cover the assistance that FED’s provided to Bank of America (thanks Zero Hedge):

Mike Shedlock comments on the WSJ’s reporting that the Fed Pushes Citi, BofA to Increase Capital:

The most likely ways for the banks to raise capital are via dilution of Treasury owned preferred stock at taxpayer expense and via the Public Private Investment Plan (PPIP). The latter is a scam to heist taxpayers to the tune of hundreds of billions of dollars.

Government officials stated today “that banks directed to raise more capital shouldn’t be viewed as insolvent.

What else can it possibly mean when taxpayers have to pony up hundreds of billions of dollars every other month just to keep the banks running?

However as Rolfe Winkler points out, converting preferred to common will not raise the total amount of capital -just increase TCE.  The government will, as Mike says, have to put more in… unless they can sucker some private investors.

Bloomberg reports

Bank of America Corp. Chief Executive Officer Kenneth D. Lewis may face scrutiny by the U.S. Securities and Exchange Commission for failing to disclose mounting losses at Merrill Lynch & Co. because of pressure from federal regulators to complete the takeover.

Former SEC Chairman Harvey Pitt said he has “no doubt” the agency will investigate. Lewis was obligated to make full disclosure to shareholders even with the regulators’ pressure, Pitt said in a Bloomberg Television interview.

The allegations in Cuomo’s letter suggest Paulson and other policy makers may have resorted to breaking securities laws to protect a fragile financial system, according to Peter Sorrentino, a senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which has about $13.3 billion under management and doesn’t own stock in Charlotte, North Carolina- based Bank of America.

“Everyone involved knew that was a clear violation, that’s material non-public information, so basically we just closed the rule book during the crisis and said we don’t care, we need to keep the lights on, and we’ll deal with that manana,” Sorrentino said. “Logic went out the window and they were just acting out of fear,” he said. It was “completely panic mode.”

So… the SEC that condones all sorts of illegal activity for years will suddenly turn over a new leaf and enforce against the Treasury?  … not hardly.

We all recall the recent boasting by Citi, B of A and JP Morgan that earnings in Jan and Feb were positive and the subsequent backpedaling that occurred regarding March.  Euromoney is questioning whether the banks can deliver on these new raised expectations. They document that investment banking fee revenues have supplied some profits, but that the trend is down, globally. The other three main lines of business are also down:

“In other business lines, revenue has collapsed. Banks made just $679 million in net revenues from syndicated loans in the first three months of 2009, down from $1.5 billion in the fourth quarter of 2008 and $2.8 billion in the third quarter and just one-eighth as much as in the high-water-mark second quarter of 2007.

Revenue from M&A in the first quarter of 2009 was running at just above half the rate of that in the fourth quarter of 2008, down from $4.5 billion to $2.6 billion in the first quarter to March 27. Quarterly revenues from M&A had run above $5 billion for the first three quarters of 2008, having peaked at above $8 billion in the last quarter of 2007.

ECM revenue has not been as robust as one might have hoped, dropping to $1.8 billion with two days to go until the end of the first quarter from $2.6 billion in the final quarter of 2008 and at barely half the rate of $3.7 billion in the first quarter of 2008. ECM revenues’ most recent peak was in the final quarter of 2007 at $6.9billion.

Put the four business lines together and total revenue for the year to March 27 is $9.2 billion, compared with $10.7 billion for the prior final quarter of 2008, $15.4 billion for the comparable first quarter of 2008 and $26 billion in the record second quarter of 2007.

Oddly, as March drew to a close, at the end of a month in which Vikram Pandit had talked up Citi’s capital strength and earnings capacity, the bank’s own credit analysts delivered a warning: don’t lose sight of the downside.  “In our opinion, investors are simply too optimistic about the earnings of the financials and may be disappointed if their expectations are not met. Although the earnings from continuing operations might provide some boost, we are afraid that potential additional write-downs could more than offset this”. “

The next 2 weeks of first quarter earnings reports will truly be interesting for followers of many companies, but for the banks, are we in for a disappointment?