U.S. clears 10 big banks to repay bailout funds

US banks to repay TARP money
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By Glenn Somerville
WASHINGTON (Reuters) - JPMorgan, Goldman Sachs and eight other top U.S. banks won clearance on Tuesday to repay $68 billion in taxpayer money given to them during the credit crisis, a step that may help them escape government curbs on executive pay.
Many banks had chafed at restrictions on pay that accompanied the capital injections. The U.S. Treasury Department's announcement that some will be permitted to repay funds from the Troubled Asset Relief Program, or TARP, begins to separate the stronger banks from weaker ones as the financial sector heals.
Treasury didn't name the banks, but all quickly stepped forward to say they were cleared to return money the government had pumped into them to try to ensure the banking system was well capitalized
Stock prices gained initially after the Treasury announcement but later shed most of the gains on concern the money could be better used for lending to boost the economy rather than paying it back to Treasury.
"If they were more concerned about the public, they would keep the cash and start loaning out money," said Carl Birkelbach, chairman and chief executive of Birkelbach Investment Securities in Chicago.
Treasury Secretary Timothy Geithner told reporters the repayments were an encouraging sign of financial repair but said the United States and other key Group of Eight economies had to stay focused on instituting measures to boost recovery.
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Earlier this year U.S. regulators put the 19 largest U.S. banks through "stress tests" to determine how much capital they might need to withstand a worsening recession. Ten of those banks were told to raise more capital, and regulators waited for their plans to do so before approving any bailout repayments.
As a condition of being allowed to repay, banks had to show they could raise money on their own from the private sector both by selling stock and by issuing debt without the help of Federal Deposit Insurance Corp guarantees. The Federal Reserve also had to agree that their capital levels were adequate to support continued lending.
American Express Co, Bank of New York Mellon Corp, BB&T Corp, Capital One Financial Corp, Goldman Sachs Group Inc, JPMorgan Chase & Co, Morgan Stanley, Northern Trust Corp, State Street Corp and U.S. Bancorp all said they had won approval to repay the bailout funds.
In contrast, neither Bank of America Corp or Citigroup Inc, which each took $45 billion from the government, received a green light to pay back bailout money.
The government is in the process of taking as much as a 34 percent equity stake in Citigroup, while Bank of America has indicated it would like to begin repayment later this year.
Treasury said banks repaying bailout funds also can repurchase warrants that the government holds in their firms "at fair market value," and many of the approved banks said they intended to do so.
The warrants give the government the right to buy common stock at a predetermined price for up to 10 years and were intended to give taxpayers a chance to share in the profits of healthy banks. Geithner said some of the warrants were now valued in "the several billion dollar range."
On Tuesday, the head of a U.S. financial bailout oversight panel, Elizabeth Warren, indicated she planned to ensure taxpayers were getting a fair deal. Continued...
Source: Reuters