As Bank of America (BAC) continues to cope with fallout from the housing and mortgage crisis, the financial institution may have to pay some year-end employee bonuses in the form of stock because of a possible cash shortfall related to obligations surrounding its buy-back of stock from the federal government.

The company has generated about $1.9 billion in after-tax earnings from sales of various assets, short of the $3 billion it agreed last December to raise as a condition for repurchasing the Bank of America stock held by the government through the Troubled Asset Relief Program.

"We continue to pursue several potential asset sales that may reduce the remaining amount of additional capital required," Bank of America said in a Nov. 5 filing with the Security and Exchange Commission. "In the event that there is a shortfall, it would be met by issuing equity awards of fully vested common stock to certain associates in lieu of a portion of their 2010 year-end cash incentive awards, which would be transferable by associates as soon as administratively practicable."

Bank of America continues to be affected by the fallout of the mortgage crisis. The company is one of a number of U.S. institutions that said last week that they may incur costs defending lawsuits from investors in their mortgage-backed securities.

Bank of America in particular said it's a defendant in cases alleging that documents relating to more than $375 billion in mortgage-backed securities may have contained misrepresentations and omissions, and failed to meet underwriting standards. Wells Fargo (WFC) and Citigroup (C) said they were defendants in similar lawsuits, and that costs may rise because of the resulting litigation.


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