10 Big Banks Allowed to Repay TARP Loans
The Treasury Department has approved 10 of the nation’s largest banks to repay $68 billion in government bailout money.
The department on Tuesday said the banks, which were not named, will be allowed to repay the money they received from the $700 billion Troubled Asset Relief Program created by Congress last October at the height of the financial crisis.
The banks have been eager to get out of the program to escape government restrictions such as caps on executive compensation.
Among the banks that passed government “stress tests” last month and likely were approved to repay the bailout funds are: Goldman Sachs Group Inc., JPMorgan Chase & Co., and American Express Co.
Experts say allowing 10 banks to return $68 billion in bailout money illustrates some stability has returned to the system but caution that the crisis isn’t over. Some worry the repayments could widen the gap between healthy and weak banks.
More than 600 banks nationwide have received nearly $200 billion in TARP money and 22 smaller banks already have repaid it.
“These repayments are an encouraging sign of financial repair, but we still have work to do,” Treasury Secretary Tim Geithner said in a statement.
The firms now have the right to purchase the warrants Treasury holds in their firm “at fair market value.” Besides Treasury’s potential income from the sale of the warrants, the 10 banks already have paid dividends on the preferred stock totaling about $1.8 billion over the last seven months.
Dividend payments received for all participants are about $4.5 billion to date, according to Treasury.
Northern Trust Corp. was not among the 19 banks subjected to stress tests, but that company also was in line to receive repayment permission, according to two industry sources with knowledge of the matter who requested anonymity because they were not authorized to discuss it.
The push to repay the funds comes a month after “stress tests” of the nation’s 19 largest financial firms found that 10 needed to raise $75 billion more to protect against future losses. All of those banks, including Citigroup Inc. and Bank of America Corp., had submitted plans by late Monday to bolster their capital cushions that were enough to help them survive a deeper recession, the Federal Reserve said.
The other nine institutions had to prove they could raise enough private capital without federal guarantees before they could return the money.
So far, 16 of the 19 banks have raised $75.2 billion, mostly by selling common stock.
Regulators want to avoid letting a bank repay its TARP money only to have it return months later in worse shape, seeking another handout.
6/9/2009 9:52 AM DANIEL WAGNER AP Business Writers WASHINGTON