Ten Major Financial Institutions Repay TARP Money

(RTTNews) - Major American banks, including Morgan Stanley (MS), JPMorgan Chase & Co. (JPM) Goldman Sachs Group, Inc. (GS), U.S. Bancorp (USB) and BB&T Corp. (BBT), repaid on Wednesday the capital they received as bail-out funds under the US government's Troubled Asset Relief Program or TARP Capital Purchase Program in October, even though the financial institutions have until November 9, 2009 to complete the repayment. The repayments by ten of the nation's largest financial institutions were estimated to total about $68 billion.

The New York-based financial service provider, Morgan Stanley Wednesday paid back the $10 billion TARP money to the U.S. Treasury, with a thank note for the support of the U.S. government, Congress and the Administration during the challenging period to ensure safety and soundness in the banking system and the strength and stability of our overall financial system.

The Goldman Sachs Group also repurchased the 10 million shares of the company's fixed rate cumulative perpetual preferred stock, series H, that were issued to the Treasury under TARP. The total purchase price paid by Goldman Sachs to the U.S. Treasury for the Preferred Stock, including accrued dividends, was about $10.04 billion. The repurchase includes a one-time preferred dividend of approximately $425 million which will be reflected in Goldman's second quarter results. The company expects the buyback to reduce reported quarterly earnings by around $0.77 per share.

Another major financial service provider, JPMorgan Chase repaid in full the $25 billion preferred stock investment it received through the TARP program, along with a total of $795,138,889 in dividends on the preferred stock, including dividends that had accrued through the redemption date. The company also revealed its plan to buyback the 10-year warrant issued to the Treasury related to the preferred investment.

As a part of the capital repurchase program, American Express (AXP) repurchased the $3.39 billion of preferred shares. The bank paid off all of the Treasury's initial investment in the bank, besides a final pro rata accrued dividend of $15.1 million, in addition to the $59.3 million previously paid to the government.

American Express also expects to notify the Treasury Department regarding its plans to have talks about repurchasing the outstanding warrants issued along with the preferred stock. The outstanding warrants entitles the Treasury Department to purchase up to 24.3 million shares of the bank's common stock.

U.S. Bancorp (USB), which repaid $6.6 billion and BB&T Corp. (BBT) that paid back $3.1 billion earlier today, also said they intend to buy back warrants for their common stock from the U.S. Treasury.

Bank of New York Mellon Corp. (BK) repurchased the 3 million shares of its preferred stock for $3.04 billion from the Treasury, which reflects the liquidation value of the preferred stock and $36.25 million of accrued but unpaid dividends. The bank would record an after-tax charge of about $197 million in the second quarter of 2009 related to this repurchase, representing the difference between the amortized cost of the preferred stock and the repurchase price.

Northern Trust Corp. (NTRS) repaid $1.58 billion preferred share investment to the Treasury that it received under the TARP Capital Purchase Program, including a final accrued dividend. Northern Trust also gave notice of its intention to buy back a related warrant issued to the Treasury that permits the purchase of up to 3.82 million shares of common stock at $61.81 per share within a 10-year period, in accordance with the terms of the Securities Purchase Agreement.

The McLean, Virginia-based Capital One Financial Corp. (COF) repurchased the 3,555,199 shares of the fixed rate cumulative perpetual preferred stock, series A issued under the TARP by paying about $3.57 billion including accrued dividends to the repurchase date.

Further, State Street Corp. (STT) repaid the full amount of the Treasury's $2 billion investment in the company under the TARP capital purchase program. State Street redeemed all of the outstanding shares of preferred stock issued to the U.S. Treasury for a total redemption price of about $2.00 billion, which includes the aggregate liquidation amount of the preferred stock and the accrued dividends since the most recent dividend payment date.

All these major U.S. banks received the green signal from the U.S. Treasury to repay TARP funds early last week, approving their long-time request to allow repayment, after having met the requirements for repayment established by the primary federal banking supervisors. The approval for repayment comes after many banks successfully raised equity capital from private investors as well as issued long-term debt that is not guaranteed by the government.

The original terms of TARP prohibited banks from repaying the fund within the first three years unless they completed a qualified equity offering. However, the provisions introduced by the American Recovery and Reinvestment Act of 2009 indicate that once an institution notifies Treasury that it would like to repay its CPP investment, the Treasury must permit a TARP recipient to repay subject to consultation with the appropriate Federal Banking Agency.

One of the major reasons for the banks to quickly repay the money is to free it from restrictions placed by the government. By repaying TARP funds, banks will be able to function independently and without government scrutiny as well as any unnecessary restrictions on bonus payments and salaries to executives. Further, the banks have reportedly received concerns from clients about being under the government's thumb.

The move came after rigorous consultation with financial institutions and lobbying by banks and is expected to bring back at least $68 billion to the public exchequer. The approval, which came a month after the government "stress tests," could be considered as an indication from the part of U.S. treasury that banking sector has improved and market conditions have begun to stabilize. The "stress tests" results showed that 10 of the 19 big financial firms required to raise $74.6 billion more in capital in order to ensure that they can weather a further downturn in the economy.

The TARP was an instrument set up last year to prop up the U.S. financial system after big bets on mortgage-related assets pushed many institutions toward collapse. Following the collapse of Lehman Brothers Holdings Inc. (LEHMQ.PK) and various other events that rocked the financial sector last year, Goldman Sachs and the other surviving brokerage giant Morgan Stanley became bank holding companies in September, providing them access to the federal government's $700 billion rescue plan.

Morgan Stanley and Goldman Sachs were among the first banks to receive funds as part of the $700 billion government bailout under the Treasury's TARP Capital Purchase Program. The companies received $10 billion each in fresh capital from the government in return for preferred stock and warrants to purchase common shares in order to shore up their balance sheet.

More than 600 banks across the country have participated in TARP, representing $199 billion in investments, as part of an effort to stabilize the financial system. After repaying their TARP preferred stock, institutions also have the right to repurchase the warrants issued to Treasury for their appraised market value.

Under the Emergency Economic Stabilization Act, proceeds from repayment will be applied to Treasury's general account. These repayments would help to reduce the Treasury's borrowing and national debt, as well as increase the Treasury's cushion to respond to any future financial instability that might otherwise jeopardize economic recovery.

MS closed Wednesday's regular trading at $27.48, down $0.62 or 2.21% on a volume of 24.41 million shares.

JPM closed Wednesday's regular trading at $32.73, down $0.77 or 2.30% on a volume of 91.86 million shares.

GS closed Wednesday's regular trading at $139.73, down $4.43 or 3.07% on a volume of 14.05 million shares.

AXP closed Wednesday's regular trading at $23.95, down $0.74 or 3.00% on a volume of 17.76 million shares. However, the stock gained $0.05 or 0.21%, and traded at $24.00 in the after-hour trade.

BK closed Wednesday's regular trading at $28.24, down $0.14 or 0.49% on a volume of 12.54 million shares.

STT closed Wednesday's regular trading at $45.25, up $0.24 or 0.53% on a volume of 7.55 million shares.

NTRS closed Wednesday's regular trading at $51.15, down $1.58 or 3.00% on a volume of 3.47 million shares. However, the stock gained $0.68 or 1.33%, and traded at $51.83 in the after-hour trade.

COF closed Wednesday's regular trading at $22.48, down $0.67 or 2.89% on a volume of 19.13 million shares. However, the stock gained $0.02 or 0.09%, and traded at $22.50 in the after-hour trade.

USB closed Wednesday's regular trading at $17.77, down $0.09 or 0.50% on a volume of 28.79 million shares.

BBT closed Wednesday's regular trading at $21.58, down $0.65 or 2.92% on a volume of 9.45 million shares. However, the stock gained $0.05 or 0.21%, and traded at $21.63 in the after-hour trade.

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