Regions Financial Corp.
(
RF
) became one of the latest banks to repay the bailout money it had
taken from the government during the latest financial crisis. On
Wednesday, the company repurchased $3.5 billion of its Series A
Preferred Stock, which were issued to the U.S. Department of the
Treasury as part of the company's participation in the Troubled
Asset Relief Program's (TARP).
Regions' repayment was financed by the proceeds from the recent
$900 million common stock offering, in addition to the sum of $1.2
billion received on closing the sale of Morgan Keegan & Company
Inc. to
Raymond James Financial Inc.
(
RJF
). Moreover, other funds from available resources were also used
for the repurchase.
In mid-March, Regions passed the stress test conducted by the
Federal Reserve as part of its 2012 Capital Plan and Review
(CapPR). Following the results, the company came up with the common
stock offering to clear the TARP dues. However, the repayment was
awaiting approval of the Federal Reserve and the Treasury
Department, which the company expected after the closing of the
sale of Morgan Keegan & Co. Inc. and related affiliates.
Earlier this week, Regions completed this deal with Raymond
James.
The U.S. government had granted a $3.5 billion worth of TARP
loan to Regions during the 2007-2009 financial crisis in the form
of preferred stock and warrants to help it recover from the
economic downturn. Over the last three years, total dividends paid
by the company on the TARP preferred stock sums up to $593 million.
However, on an annual basis, the repurchase of stock eradicates the
dividend payment of $175 million on these securities.
U.S. Treasury still holds warrants to buy common stock in
Regions with an expiry date in 2018. The Treasury has the right to
buy 48.3 million shares of Regions' common stock for $10.88 per
share.
However, due to its moderately improving earnings after the
economic crisis, Regions was finding it difficult to get permission
to pay back the bailout money. But, in January, Regions reported
the fifth consecutive quarterly profit after incurring losses since
the second quarter of 2009.
Meeting the stress test criteria signifies that Regions is
comfortably positioned in terms of capital and can survive another
economic downturn. In addition, after settling the TARP obligation,
Regions will look forward to deploy its capital through dividend
hike and share repurchase, which will further enhance investors'
confidence on the stock.
Recently, another bank-
Zions Bancorporation
(
ZION
) paid 50% of its total TARP dues of $1.4 billion. Zions redeemed
$700 million of its Fixed Rate Cumulative Perpetual Preferred
Stock, Series D which were issued to the U.S. Department of the
Treasury under the TARP Capital Purchase Program. Zions' repayment
was financed by the proceeds from the recent $300 million senior
notes offering, in addition to other funds from available
resources.
A total of $245 billion was handed out to the banks as bailout
money. In the form of repayments, dividends, interest and other
income, $263 billion has been returned as well. Still, many of the
regional banks have not repaid the entire bailout money.
Till date, taxpayers have recovered approximately 81% of the
total $414 billion distributed by government across all TARP
programs, which amounted to $337 billion.
While the larger Wall Street banks had repaid the TARP money
earlier in 2009 and 2010, many regional banks stepped back due to
continued high levels of losses in their loan portfolios. In
addition to that, the economy was under tremendous stress. However,
the recent repayment of the TARP loan by a large number of these
banks can be viewed as a sign of economic recovery.
Furthermore, the TARP loan repayment is essentially a positive
for Regions. It will remove the restrictions on both financial and
executives' pay package flexibility that the company was subject
to, upon being a TARP participant.
Regions currently retain a Zacks #2 rank, which translates into
a short-term 'Buy' rating. However, considering the fundamentals,
we maintain a long-term "Neutral" recommendation on the stock.
REGIONS FINL CP (
RF
): Free Stock Analysis Report
RAYMOND JAS FIN (
RJF
): Free Stock Analysis Report
ZIONS BANCORP (
ZION
): Free Stock Analysis Report
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