Banks set to repay government

Ten big US banks got approval Tuesday to repay 68 billion dollars in capital from the Treasury, in the latest sign the ailing financial sector is standing on its own without government aid.

President Barack Obama welcomed the news but warned that the troubles of the sector were far from over.

Obama said that "it is worth noting that in the first round of repayments from these companies, the government has actually turned a profit."

But the president warned "this is not a sign that our troubles are over — far from it."

The Treasury made the announcement a day after the Federal Reserve said the 10 banks ordered to raise new capital following "stress tests" had developed sufficient plans in place to shore up their finances.

The actions begin to unwind the controversial move by the administration of President George W. Bush to pump hundreds of billions of dollars of capital into banks to stave off a feared meltdown of the financial system.

The capital injections came over the protests of some banks who argued that the government was meddling in their affairs, imposing restrictions on executive pay and pushing for increased lending.

The Treasury statement said the repayments "follow a period in which many banks have successfully raised equity capital from private investors" and had issued long-term debt not guaranteed by the government.

A number of banks immediately announced their intention to repay money they borrowed from the Treasury under the Capital Purchase Program, formerly known as the Troubled Asset Relief Program (TARP).

JPMorgan Chase said it would repay the Treasury for its 25 billion dollar investment, along with dividends.

"Paying back TARP at this time is the right thing for JPMorgan Chase, and it’s the right thing for our country," said Jamie Dimon, chairman and chief executive. "We feel it’s best for our government to be able to use these funds for other critical purposes."

Morgan Stanley said it "is pleased to be repaying its 10 billion dollars in TARP capital with an attractive return for taxpayers."

"We believe this positive development reflects both Morgan Stanley?s strong capital position as well as the important systemic role the TARP program played in helping stabilize the US banking system since the height of the financial crisis," the group said.

Goldman Sachs said it would repay the Treasury’s 10 billion dollars.

"We are grateful for the government’s extraordinary efforts and are pleased to be able to return to the US Treasury the funds that were invested in Goldman Sachs," said Lloyd Blankfein, chairman and chief executive.

Other banks announcing plans to repay the government included American Express (3.39 billion), Capital One Financial (3.55 billion dollars), US Bancorp (6.6 billion), BB&T Corporation (3.134 billion), State Street Corporation (2.0 billion) and The Bank of New York Mellon (3.0 billion).

Combined with repayments from smaller banks, the Treasury will have received some 70 billion dollars in repayments.

"These repayments are an encouraging sign of financial repair, but we still have work to do," said Treasury Secretary Timothy Geithner.

Diane Casey-Landry of the American Bankers Association hailed the news as "a sign that investor interest in the banking industry is growing."

"In the case of these banks and the 22 others that have already repaid the Treasury, taxpayers are getting all of the principal back and are experiencing a solid return on their investment," she said.

"The vast majority of the nation’s 8,200 banks has been and continues to be well capitalized."

Firms that repay their preferred stock have the right to repurchase the warrants — or rights to purchase additional shares — Treasury holds at fair market value.

The 10 banks have paid dividends on the preferred stock totaling about 1.8 billion dollars over the last seven months and all dividends from the TARP program have amounted to 4.5 billion dollars to date.

The Treasury said it had invested 199 billion dollars in 600 banks under TARP, which gave the government authority to commit 250 billion dollars to bank recapitalization.

One Response to "Banks set to repay government"

  1. woody188  June 10, 2009 at 4:18 pm

    How about the $15-25 billion each of these banks took from AIG?

    When will we see that AIG money returned?

    How about them buying back the warrants for pennies that are now worth billions?

    These warrants were created to give tax payers more money back on their investment. Now the government is saying the banks can buy them back on the cheap and not have to give tax payers a dime.

    I’m feeling that these banks want the caps lifted off their executive pay now, so when they go south in the second half they still won’t be restricted even though they will be back on the government dole.

    They’ll say something like they have to honor their contracts or some such. Never mind the contracts wouldn’t be worth wiping themselves with without tax payer money injected into them.

    Diane Casey-Landry of the American Bankers Association hailed the news as “a sign that investor interest in the banking industry is growing.”

    “In the case of these banks and the 22 others that have already repaid the Treasury, taxpayers are getting all of the principal back and are experiencing a solid return on their investment,” she said.

    “The vast majority of the nation’s 8,200 banks has been and continues to be well capitalized.”

    Really?

    Then why aren’t they lending any out?

    Or is it consumers are so in debt they can’t afford any more debt without going into default?

    What is the point of re-capitalizing banks if consumers are so tapped out they can’t take out the loans?

    We basically just wasted a trillion dollars giving bankers a free ride while everyone else suffers. And it’s our kids and grand-kids that are going to still be paying these bankers for this mess.

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