10 big banks to repay $68B in bailout money

WASHINGTON — Ten of the nation's biggest financial companies got a green light Tuesday to return $68 billion in federal bailout money — freeing the banks from limits on executive pay and leaving the government with a small gain on the rescue cash.

Presidential spokesman Robert Gibbs said the returned money would go "back into general revenue" and could even be used to bail out banks again.

The Treasury Department said the banks had been approved to repay the money they received from the Troubled Asset Relief Program created by Congress in October at the height of the financial crisis.

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

More than 600 financial institutions have received taxpayer bailout money worth a total of $199 billion under the Capital Purchase Program. Ten of the biggest banking companies now will begin to repay the Treasury, an encouraging sign since critics were calling for bank nationalization just months ago and bank share prices were in the dumps.

All eight banks that took TARP money and last month passed government "stress tests" confirmed 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.

Not on the list were three troubled institutions — Bank of America, Citigroup and Wells Fargo — that have received a total of $115 billion in bailout money.

Most of the other companies that weren't among those authorized to return bailout money were big regional banks, many of which are vulnerable to a sharp downturn in commercial real estate. They include Fifth Third Bancorp, KeyCorp, PNC Financial Services Group, Regions Financial Corp. and SunTrust.

Auto finance giant GMAC received taxpayer money that it isn't able to repay now.

President Barack Obama welcomed the announcement.

"I've said repeatedly that I have no interest in managing these banks — or running auto companies or other private institutions, for that matter. So today's announcement is welcome news," Obama said, noting a small profit for taxpayers.

"But I also want to say: The return of these funds does not provide forgiveness for past excesses or permission for future misdeeds. It is critical that as our country emerges from this period of crisis, that we learn its lessons; that those who seek reward do not take reckless risk; that short-term gains are not pursued without regard for long-term consequences."

The 10 banks that will start repaying the Treasury already have paid the U.S. government $1.8 billion in dividends since the government became a preferred shareholder under the Bush administration's bank rescue program. Additionally, the government received stock warrants in exchange for the bailout money, and some analysts think that the government could reap an additional $5 billion in profits once negotiations over all the warrants conclude.

Bank analyst Bert Ely called the repayments a positive sign for the banking sector but not a reason to celebrate. He noted that Citigroup, Wells Fargo and Bank of America are still tied to the bailout.

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.

Other observers worried the repayments are a better deal for the banks than they are for the taxpayer.

"We all know why the senior executives want to repay this money: It's a burden to manage the TARP politics," said Mark Williams, a finance professor at Boston University and former Fed examiner.

Williams argued that it would be best for the banks to keep as much capital as possible until the economy turns around. Unemployment continues to rise, he said, and that could mean more losses on loans and new bank failures.

"We're not at the bottom of the banking crisis, so why is it, then, that the regulators are letting these banks reduce their capital cushion?" Williams said. "Should they stumble again, taxpayers will have to come to rescue."

FAST FACTS

Payback

The amounts the banks could repay under the plan announced Tuesday:

JPMorgan Chase: $25 billion

Goldman Sachs: $10 billion

Morgan Stanley: $10 billion

U.S. Bancorp: $6.6 billion

Capital One: $3.6 billion

American Express: $3.4 billion

BB&T: $3.1 billion

Bank of New York Mellon: $3 billion

Northern Trust: $1.6 billion

State Street: $2 billion

10 big banks to repay $68B in bailout money 06/09/09 [Last modified: Wednesday, June 10, 2009 6:25am]

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