NEW YORK (Reuters) - U.S. officials on Tuesday gave 10 of the nation’s biggest banks approval to pay back a combined $68 billion of taxpayer money pumped into them to combat the credit crisis.
The Treasury Department did not name the banks but many of them are likely to announce they are making repayments and their names eventually will be published in routine Treasury reports.
The following is reaction from analysts and investors:
MARC PADO, U.S. MARKET STRATEGIST, CANTOR FITZGERALD & CO, SAN FRANCISCO:
“Today we have the announcement of the repayment of TARP. Partly what’s that telling you is that banks are spending all their money paying back the government and not doing what that money was intended to do, which was to stimulate the economy and lend that money.”
DAVID KOTOK, CHIEF INVESTMENT OFFICER AT CUMBERLAND ADVISORS IN VINELAND, NEW JERSEY
“We now have two categories of ‘too large to fail’ institutions. Those that are deemed worthy of survival on their own and those that are deemed to require vigilance by the government. Of course, all require vigilance and supervision by the government.The whole process is arbitrary.
“This process evolved after the failure of Lehman Brothers. Post-Lehman policy is that large failures and large scale resolutions are not permitted.
“We have constructed a new form of moral hazard and a new form of implied guarantee. Note that the last huge implied guarantee was extended to FannieMae and Freddie Mac and we know what eventually happened there. TARP is really a trap.”
CRAIG PECKHAM, EQUITY TRADING STRATEGIST AT JEFFERIES & COMPANY IN NEW YORK
“I don’t think that is at this point terribly surprising to the market place. Repayment of these loans had been increasingly discounted into investors’ expectations going into today.
In the financials, it feels a little bit like it could be ‘sell on the news.’
What you’ll see, and you’re already seeing, is individual banks themselves will raise their own hands independently and identify themselves in that regard.
If you’re a bank you absolutely want to communicate to the marketplace you’re going to be repaying TARP funds because that’s something you’re going to brag about.”
BULENT BAYGUN, HEAD OF U.S. INTEREST RATE STRATEGY, BNP PARIBAS, NEW YORK
“This has been making the rounds in the market since yesterday.”
“I don’t think that this catches anybody by surprise at this stage. There was a buildup toward this point for the past month or so anyway with banks raising capital and raising capital beyond what is required by the stress tests.
“I don’t think this impacts the market a lot and the reason why I say that is because a lot of that is already priced in.
“This was all part of the gradual improvement story. I think that the most important take-way from this is that banks can come to the market and raise capital. That’s obviously a very positive sign.”
WILLIAM LEFKOWITZ, CHIEF OPTIONS STRATEGIST AT VFINANCE INVESTMENT
On Morgan Stanley’s repayment of $10 billion in TARP funds:
“That’s very good news. A lot of people felt that when the government was giving money to these banks that they would never get it back. To get it back this quickly, those people have to take a step back and say maybe, during the crisis, the government did the right thing. That should be a positive for the whole equity market. Now that we’re getting the payment back it maybe a sign that we’ve gotten through the major negative crisis problems and we’re starting to turn.”
“You’ve seen a nice move in some of the Financials, Goldman Sachs has had a very big run already.”
“People should be pretty comfortable that now that the government is allowing these banks to pay the TARP money back, they fully believe that the worst is behind us. And that’s what allowing these banks to pay back the money is saying”.
“The one negative is that everything is starting to get better right now, so what you’re starting to see is interest rates moving back up.
“For the short term this is a positive and it should allow people to feel better about the markets, both the bond and stock markets.”
WILLIAM LARKIN, PORTFOLIO MANAGER WITH CABOT MONEY MANAGEMENT IN BOSTON:
(On news of bailout funds repayments approval)
“It is definitely a positive for the banks.”
“This was being anticipated, but now it has been defined. I think the market has priced in this news, but it puts another event behind us.”
“The clarification on which banks are paying back will be a big one because it will give them a competitive advantage: they will be free and clear of government intervention.”
STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO. IN GREENWICH, CONNECTICUT
“It seems like a lot of the news was leaked to newspapers, so there aren’t any major surprises here. Stocks are trading mixed on the news, after initially rebounding on the final announcement. We’re back and forth in the market, but we’ve been up 11 of the past 13 weeks and we gained a lot in the process. Stocks should continue to be supported on modest pullbacks, and as we pull back the path of least resistance will be higher.
“The stocks pared their gains because it wasn’t a surprise. Banks were up yesterday on a relative basis in anticipation of this result. We saw the information in the Wall Street Journal this morning, so it isn’t a surprise.”
TIM GHRISKEY, CHIEF INVESTMENT OFFICER OF SOLARIS ASSET MANAGEMENT IN BEDFORD HILLS, NEW YORK
“What the Treasury doesn’t want to do is put pressure on the banks that haven’t repaid and are still in the process of rebuilding their balance sheet. So they don’t want to disadvantage the banks who need the TARP funds and pressure them more. And that’s a reason why they didn’t want other firms to repay their TARP money, because it would single out those who hadn’t repaid. Unfortunately it’s probably the type of thing that traders are going to speculate about and there will be lots of rumors. But I can certainly see what the Treasury is doing, what their thinking is in all of this — wanting to keep the situation under control.”
“It’s terrific news...Geithner thinks most of his work with U.S. banks is done, and he’s demanding European regulators should redo their bank stress test.”
“This certainty of the TARP repayment came after the bank stress test.”
“The focus is going to shift to those banks who are not repaying TARP. This is going to put pressure on their stock price and that’s going to be incentive for them to get out before the end of the year.”
Reporting by Ryan Vlastelica, John Parry, Chuck Mikolajczak, Mary Angela Rowe, Vikram Subhedar, Ellis Mnyandu, Burton Frierson and Richard Leong