Whispers Thursday afternoon of a possible second-round injection of federal funds into Bank of America Corp. (BAC) were confirmed late Thursday night when the U.S. Treasury and Federal Deposit Insurance Corp. announced in a press release the government had agreed to invest an additional $20 billion into the banking giant. The $20 billion in TARP funds will be exchanged for preferred stock with an 8 percent dividend to the Treasury. The Treasury and FDIC have also agreed to share losses on $118 billion of the company’s assets. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch & Co., finalized as of Jan. 1, the press release said. The announcement came soon after a Senate vote gave President-elect Barack Obama access to the second half of the government’s $700 billion bailout fund, which passed in a 275 to 152 vote, despite a bill by Sen. David Vitter (R – La.) to block the release of the remaining funds. Bank of America reportedly began discussions with Treasury regarding the extra aid back in mid-December, as a means to absorb growing credit losses at brokerage giant Merrill Lynch & Co. The Treasury Department already holds $25 billion in Bank of America preferred stock as a result of capital infusions. The first stock purchase of $15 billion occurred on Oct. 28 and the second purchase of $10 billion — originally slated as a purchase of Merrill Lynch stock — was deferred pending the merger and later logged as a purchase of BofA stock on Jan. 9. The additional assistance for Bank of America resembles follow-up aid given to Citigroup Inc. (C) in November, after it too received $25 billion in the first round of infusions. In that transaction, the government agreed to guarantee most of a $306 billion pool of troubled assets if losses surpassed $29 billion. Under the agreement announced Thursday night, Bank of America must cut its quarterly dividend to holders of its common stock to one cent a share from the current 32 cents a share — a dividend that can’t be raised for three years without government permission. Additionally, Bank of America has agreed to comply with enhanced executive compensation restrictions and implement a mortgage loan modification program. The U.S. government agreed to the second-round injection just hours before Bank of America reported that its fourth-quarter profit tumbled 95 percent. See Full Story. Write to Kelly Curran at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.