June 17, 2009 / 2:17 PM / 10 years ago

Big banks repay government bailout funds

NEW YORK, June 17 Reuters) - Ten of the largest U.S. banks said on Wednesday they repaid more than $68 billion of taxpayer bailout funds, as they race to extract themselves from government restrictions on pay for top executives.

A man walks into the Morgan Stanley building in New York in this April 29, 2009 file photo. REUTERS/Brendan McDermid

Banks are returning money taken from the $700 billion Troubled Asset Relief Program, 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 percent dividends in exchange for the money.

JPMorgan Chase & Co said it repaid $25 billion to TARP, while Goldman Sachs Group Inc and Morgan Stanley said they repaid $10 billion each.

Among other banks, U.S. Bancorp said it repaid $6.6 billion, Capital One Financial Corp $3.6 billion, American Express Co $3.4 billion, BB&T Corp $3.1 billion, Bank of New York Mellon Corp $3 billion, State Street Corp $2 billion and Northern Trust Corp $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 Corp and Citigroup Inc, which did not get a green light to repay TARP.

Each took $45 billion from the program, and the government is in the process of taking a potential 34 percent 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 U.S. Bancorp also intend to buy back warrants for their common stock from the U.S. 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 of 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 $425 million, which will reduce second-quarter earnings by about 77 cents a share, while Morgan Stanley said it expects a $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.

Bank shares closed mostly lower on Wednesday, with the KBW Banks Index down 3.29 percent.

Reporting by Elinor Comlay, additional reporting by Steve Eder; editing by John Wallace, Andre Grenon and Bernard Orr

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