10 US banks repay $99b of bailout funds

10 US banks repay $99b of bailout funds
Banks race to free themselves from govt restrictions tied to relief scheme

NEW YORK: - Ten of the largest US banks have repaid more than US$68 billion (S$99 billion) of taxpayer bailout funds, as they race to extract themselves from government restrictions on pay for top executives.
Banks are returning money taken from the US$700 billion Troubled Asset Relief Programme (Tarp), which was once intended to spur lending but is now viewed as a sign that recipients are too weak to survive on their own. In most cases, the banks issued preferred shares that carried 5 per cent dividends in exchange for the money.

JPMorgan Chase said it repaid US$25 billion to Tarp, while Goldman Sachs and Morgan Stanley said they repaid US$10 billion each.

Among other banks, US Bancorp said it repaid US$6.6 billion, Capital One Financial Corp US$3.6 billion, American Express US$3.4 billion, BB&T Corp US$3.1 billion, Bank of New York Mellon Corp US$3 billion, State Street Corp US$2 billion and Northern Trust Corp US$1.57 billion.

Apart from Northern Trust, all of these banks underwent government ’stress tests’ of their ability to withstand a deep recession and the government gave these 10 permission to repay the funds last week.

Several of the banks that underwent the tests were ordered to plug capital shortfalls, including Bank of America and Citigroup, which did not get a green light to repay Tarp.

Each took US$45 billion from the programme, and the government is in the process of taking a potential 34 per cent equity stake in Citigroup. Bank of America has said it would like to start returning government funds later this year.

American Express, Bank of New York Mellon, BB&T, JPMorgan, Northern Trust and US Bancorp also intend to buy back warrants for their common stock from the US Treasury, which they awarded when they took the bailout money.

The warrants give the Treasury the right for up to 10 years to buy common stock in the banks at a set price. Banks can buy back the warrants at ‘fair market value’, the Treasury said.

BB&T is negotiating a buyback, a spokesman said. The other banks did not comment on the status of buybacks or potential terms.

As a condition for being allowed to repay, banks had to show they could raise money from the private sector by selling stock and issuing debt without the help of government guarantees.

The Federal Reserve also had to agree that their capital levels were adequate to allow them to continue lending.

In connection with the early repayment and associated dividends, several banks are taking second-quarter charges.

Goldman Sachs said it paid a dividend of US$425 million, which will reduce second-quarter earnings by about 77 US cents a share, while Morgan Stanley said it expects a US$892 million charge in the second quarter relating to the early repayment.

At least 22 smaller banks have been allowed to repay some or all of their Tarp money, although most must still negotiate terms to buy back or extinguish their associated warrants.

REUTERS

Source : Straits Times - 19 June 2009

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