America's largest bank admitted yesterday to losses as a result of a $1 billion (£657 million) investment in a firm similar to the hedge fund investment vehicles which have claimed a number of high-profile casualties in recent weeks.
BankAmerica, which was formed only last month, has been forced to buy $20 billion of bonds from the New York investment firm DE Shaw, which was running a highly leveraged fund. That sum dwarfs the $3.5 billion package put together last month by the US Federal Reserve to rescue Long- Term Capital Management.
The bank - formed from the merger of Nationsbank and BankAmerica - yesterday admitted to losses of more than $200 million from its involvement with DE Shaw, in which it has a $1 billion stake.
It said it was buying the $20 billion of bonds from DE Shaw to "better manage the associated risk during a period of market turbulence". The bank plans to sell the bonds as quickly as possible. Mr James Hance, chief financial officer, said the bank had made a $1.3 billion unsecured loan to DE Shaw and had taken a $372 million charge to cover credit losses to the firm.
