Jan. 15 (Bloomberg) -- Bank of America Corp., the biggest U.S. bank by assets, plunged 18 percent in New York trading on concern the company needs more government aid to absorb losses from the acquisition of Merrill Lynch & Co.

The lender slid $1.88 to $8.32 at 4:15 p.m. in New York Stock Exchange composite trading after hitting $7.35, its lowest point since February 1991. Bank of America, based in Charlotte, North Carolina, may receive loan guarantees specifically tied to Merrill Lynch, a person familiar with the matter said, declining to say how large the package might be.

Bank of America told regulators in December it might abandon the takeover because of Merrill's worse-than-expected results, and the bank is in talks to get more U.S. aid, said three other people familiar with the matter. The government insisted the Merrill deal proceed because its collapse would renew turmoil in the financial system, said the people, who declined to be identified because talks are private.

“It suggests that the Merrill acquisition was more dangerous than they thought,” said Kevin Kruszenski, director of equity trading at Keybanc Capital Markets in Cleveland.

Speculation that more of the nation's biggest banks will need another dose of federal money helped send Citigroup Inc. down 15 percent, and Wells Fargo & Co. fell 13 percent. Bank of America's shares had declined 30 percent through yesterday since Chief Executive Officer Kenneth Lewis told employees on Jan. 6 that 2008 performance may miss company expectations.

Trying to Get Healthy

“This is beyond watching your competitors have a tough time,” JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said today on a conference call with reporters, after his company announced a 76 percent decline in fourth-quarter profit. “We want the country to get healthy quick, our competitors to get healthy quick and we're always going to have tough competitors. And we don't think seeing anyone hurt is necessarily a good thing for us.”

Details of a government-aid package may be disclosed on Jan. 20, when Bank of America could post its first quarterly loss in 17 years after buying Merrill Lynch and home lender Countrywide Financial Corp.

The combined company has already received infusions of $25 billion from the U.S. Treasury. Bank of America may receive $15 billion more from the government, FoxBusiness reported today, without saying where it got the information. CNBC reported the government may guarantee as much as $200 billion in Bank of America assets, without identifying a source.

Overreaching?

Lewis overreached by rescuing two money-losing companies in six months, including New York-based Merrill Lynch and Calabasas, California-based Countrywide, say analysts including Paul Miller of Friedman Billings Ramsey Inc. Since becoming CEO in 2001, Lewis has spent $129 billion on acquisitions, including regional lenders FleetBoston Financial Corp. and LaSalle Bank, credit-card issuer MBNA and investment manager U.S. Trust Co.

Bank of America on Sept. 15 agreed to buy Merrill Lynch, the world's largest securities firm, after a weekend of negotiations between Lewis and Merrill CEO John Thain. The $19.4 billion transaction came as Lehman Brothers Holdings Inc. sank into bankruptcy, crippled by the frozen credit markets.

“Bank of America has all kinds of problems with its acquisitions,” said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. “They've been so acquisitive, they find themselves with very little in tangible equity.”

Terms Not Set

Discussions about U.S. aid started in mid-December and the bank completed the purchase Jan. 1, based on assurances of U.S. help, according to the people. The new aid package is designed to ensure the Merrill Lynch deal gets done, not to save Bank of America from collapse, one person said.

The Treasury may decide to absorb some losses on Merrill's assets and cap the bank's liability, with terms still being discussed, the people said.

Scott Silvestri, a spokesman for Bank of America, and Brookly McLaughlin, a Treasury spokeswoman, declined to comment.

Merrill may have lost 50 cents a share in the fourth quarter, Credit Suisse analyst Susan Roth Katzke estimated last month, citing declines in real estate, leveraged loans and private equity.

In 2009, Bank of America is likely to write down about $6.7 billion of Merrill Lynch's $36 billion in loans and securities backed mainly by commercial real estate, Citigroup analyst Keith Horowitz wrote in a Jan. 11 report. Revenue from investment banking and wealth management will decline this year by at least 20 percent, he estimated.

Declining Profits

Making the Merrill acquisition pay off will prove difficult because the brokerage's two key businesses, its investment bank and 16,850 financial advisers, promise to be less profitable in coming years, said Julian Mann, a vice president of First Pacific Advisors LLC in Los Angeles. “There's going to be more traditional banking and less of the whiz-bang stuff,” he said.

The Merrill purchase followed Bank of America's July acquisition of Countrywide, the largest U.S. home lender. That transaction is probably causing losses at Bank of America because of the declining value of U.S. home prices, Townsend said. Losses from Countrywide's loans to delinquent borrowers may top $29 billion through 2011, Horowitz wrote in his report.

Bank of America has sufficient sources of capital and more than 10 percent of U.S. bank deposits, giving it staying power, said David Hendler, an analyst at CreditSights Inc., who has an “overweight” rating on the company. Lewis is cutting as many as 35,000 jobs to help achieve $7 billion in annual merger-related cost savings and he raised $2.8 billion by selling some shares in China Construction Bank.

Led by Lewis

A bank employee since 1969 and the third CEO to lead the company since 1973, Lewis retains his board's confidence as he tries to integrate Merrill and Countrywide, says Larry Carroll, president of Carroll Financial Associates, a Charlotte investment firm that manages $1.3 billion.

“Of the big three U.S. banks, Bank of America has the best chance of surviving because their trading risk is so much smaller” than Citigroup or JPMorgan Chase, said Christopher Whalen, co-founder of Institutional Risk Analytics, a Torrance, California financial-services research firm.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net;

Last Updated: January 15, 2009 17:11 EST