Finance Globe

U.S. financial and economic topics from several finance writers.
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Ten Banks to Pay Back $68 Billion in TARP Funds

Ten of the nation's leading banks won approval from the U.S. Treasury to repay about $68 billion in TARP funds, the government said Tuesday. "These repayments are an encouraging sign of financial repair, but we still have work to do," said Secretary Tim Geithner.

Combined with repayments received to date from other institutions, Treasury will have received approximately $70 billion in repayments from Capital Purchase Program (CPP) participants. More than 600 banks across the country have participated in the CPP, representing $199 billion in investments.

These repayments follow a period in which many banks have successfully raised equity capital from private investors. Also, for the first time in many months, these banks have issued long-term debt that is not guaranteed by the government.

Under the CPP investment agreements, firms that repay their preferred stock have the right to repurchase the warrants Treasury holds in their firms at fair market value. In addition to Treasury's potential income from sale of the warrants, these 10 institutions have already paid dividends on the preferred stock totaling approximately $1.8 billion over the last seven months. Dividend payments received for all CPP participants are approximately $4.5 billion to date.

Proceeds from repayment will be applied to the Treasury's general account, as directed by the Emergency Economic Stability Act (EESA). These repayments help to reduce Treasury's borrowing and national debt, and also increase the Treasury's cushion to respond to any future financial instability that could get in the way of economic recovery.

The Treasury did not name the banks included in the group of ten, but several banks confirmed their intentions to repay the bank bailout money.

Capital One said they would repurchase the $3.55 billion in preferred shares they issued to the government. Morgan Stanley said in a statement that they were "pleased to be repaying its $10 billion in TARP capital with an attractive return for taxpayers."

JPMorgan Chase Chairman and CEO Jamie Dimon said, "Paying back TARP at this time is the right thing for JPMorgan Chase, and it's the right thing for our country." He added, "We feel it's best for our Government to be able to use these funds for other critical purposes." Dimon reiterated the company's "commitment to continued robust lending and to doing the right thing for the company's customers, communities, employees and shareholders." The bank plans to pay back the $25 billion in preferred shares plus dividends in full at a time determined by the government.

“American Express has met all the requirements of the CPP and we believe that repurchasing our preferred shares at this time is in the best interest of our shareholders as well as good public policy,” said Kenneth I. Chenault, the company's chairman and CEO.

President Obama said in a press conference, "This is not a sign that our troubles are over -- far from it. The financial crisis this administration inherited is still creating painful challenges for businesses and families alike. And I think everybody sees it in their own individual districts. But it is a positive sign."

The big banks have been working with the Treasury for several months to pay back TARP funds. Doing so will allow them to run their businesses according to their own terms and to break free from the government restrictions on executive pay and bonuses.



Sources:
U.S. Department of the Treasury
The White House
Morgan Stanley
JPMorgan Chase
Capital One
American Express
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Monday, 21 October 2019

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