posted June 09, 2009 01:42 PM         

The department on Tuesday said the banks, which were not named, will be allowed to repay the money they received from the $700 billion Troubled Asset Relief Program created by Congress last October at the height of the financial crisis.

The banks have been eager to get out of the program to escape government restrictions such as caps on executive compensation.

All eight banks that took TARP money and last month passed government "stress tests" confirmed that they received permission to repay the bailout funds. They are: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.

Morgan Stanley did not pass the government test, but on Tuesday said it had raised enough capital quickly and was approved to repay its TARP money.

Northern Trust Corp. was not among the 19 banks subjected to stress tests, but the company said it also had received permission to repay the bailout funds.

Experts say allowing 10 banks to return $68 billion in bailout money illustrates some stability has returned to the system but caution that the crisis isn't over. Some worry the repayments could widen the gap between healthy and weak banks.

Stocks zigzagged after the Treasury's widely expected announcement. In midday trading, the Dow Jones industrial average dropped about 30 points. Broader indices were mixed.

More than 600 banks nationwide have received nearly $200 billion in TARP money and 22 smaller banks already have repaid it.

"These repayments are an encouraging sign of financial repair, but we still have work to do," Treasury Secretary Tim Geithner said in a statement.

But some analysts warned that strong performance at the largest banks might obscure greater dangers in the broader banking industry.

Smaller banks are still saddled with billions of dollars in risky commercial real estate loans, which could cause heavy losses depending on the speed of economic recovery. And large banks continue to hold the toxic, mortgage-backed assets at the heart of the financial crisis.

Longtime bank analyst Bert Ely called the repayments a positive sign for the banking sector but not a reason to celebrate. He noted that three of the nation's biggest banks — Citigroup Inc., Wells Fargo & Co. and Bank of America Corp. — are still tied to the bailout.

The repayments show "that some of the major players have strengthened and will be able to ride out the crisis. The question is how will the other banks manage. It's not even clear the recession is bottoming out," Ely said.

Even the banks permitted to repay the bailout funds are still dependent on government support, including debt guarantees from the Federal Deposit Insurance Corp. and credit lines from the Federal Reserve.

The firms now have the right to purchase the warrants Treasury holds in their firm "at fair market value." Besides Treasury's potential income from the sale of the warrants, the 10 banks already have paid dividends on the preferred stock totaling about $1.8 billion over the last seven months.

Testifying before a Senate panel Tuesday, Geithner said the value of the warrants for banks permitted to repay TARP funds are in the "several billion dollar range."

Treasury spokesman Andrew Williams said the banks can begin repaying immediately — "as soon as they figure out where to send the check."

posted June 12, 2009 10:03 AM         

Wow, what a great return on invested capital.

Let's see just how great this is.

American taxpayers invested $787,000,000,000, that's 787 BILLION DOLLARS and got a 4.5 billion dollar return. What a fantastic return.

posted June 12, 2009 12:41 PM         

certainly not the whole nine yards but it's a start. and a good deal more than 4.5 billion. and many more of the smaller banks have already repaid theirs.

personally i think they should just keep the money the way the bush administration laid it out, no regulations nor restrictions necessary. "here guys, take it and run, and oh, if you want to repay someday, we'll be happy to accept!"

posted June 12, 2009 04:27 PM         

"In the first round of repayments" from financial institutions that received TARP money, "the government has actually turned a profit."
Barack Obama on Tuesday, June 9th, 2009 in a statement at the White House

Obama says government has so far turned a profit on money used to stabilize banks

Admit it, when the federal government decided last fall to spend hundreds of billions to stabilize banks through the Troubled Assets Relief Program, or TARP, you thought the money was as good as gone.

Not so, President Obama said at the White House on June 9, 2009.

"Several financial institutions are set to pay back $68 billion to taxpayers," he said. "And while we know that we will not escape the worst financial crisis in decades without some losses to taxpayers, it's worth noting that in the first round of repayments from these companies the government has actually turned a profit."

A quick summary of how we got to this point:

As part of the TARP, the government invested about $200 billion in 600 banks across the country, essentially buying up preferred stock.

A lot of banks now want out. The government money came with strings, including restrictions on executive compensation. Plus, there was a stigma attached to participating in the government program.

On June 9, the Treasury Department announced that 10 of the largest financial institutions that participated in the Capital Purchase Program (through TARP) have been approved to repay $68 billion. Yes, they had to be approved to repay the money. The companies had to prove they no longer needed the money, because the government doesn't want them begging for more down the road.

To date, those 10 companies have paid dividends on their preferred stock to the Treasury totaling about $1.8 billion, the Treasury announced. Overall, dividend payments from all of the 600 bank participants has come to about $4.5 billion so far. That's commensurate with the 5 percent (annualized) dividend return that was part of the terms of the program.

Now, the government borrowed the money it invested in the banks, and so dividends from the preferred stock are offset by interest the government has had to pay on its loans. But that interest rate has been lower than the 5 percent dividend rate. So when the companies repay the loans, it will result in some profit to the government, banking analysts told us.

There's another potential profit center. As part of the deal with banks, the federal government received warrants to buy stock at a future date (with the hope that as the economy improved and bank stock value rose, the government could share in the bounty). According to the Treasury announcement on June 9, firms that repay their preferred stock have the right to repurchase those warrants at fair market value. Experts believe that could fetch the government several billion dollars. That's in addition to the dividends.

David John, a senior research fellow at the conservative Heritage Foundation, said that while it's accurate to say the government is turning a profit on these specific transactions, it was so costly to create the TARP that "you can't say the overall program is a money-maker."

And, John said, the 10 financial institutions that will be repaying the Treasury are among the strongest. It remains to be seen how the others will fare, he said.

"It's way too soon to judge the entire program," John said. "I'd be surprised if it ends up anything better than break-even."

Still, the public too often tagged TARP as a bailout, said John Hall, a spokesman for the American Bankers Association.

"It's as if people thought money was handed out to banks," Hall said. "It wasn't. And it drove us nuts. The government has turned a profit. It made money plus some."

Bank analyst Bert Ely said while the government may end up losing money on investments in some financial firms, it's likely the entirety of the bank portion of the TARP will ultimately turn a profit.

The 5 percent paid in dividends on preferred stock purchased by the Treasury will certainly outpace the interest rate on money borrowed to finance the program, he said. And the warrants could also prove profitable.

"People think the government gave banks money," Ely said. "They made investments in banks."

posted June 12, 2009 09:41 PM         

Clearly, O'Bomber is a liar.

4.5 Billion on an 787 Billion dollar outlay does not in any way constitute a "profit"