BofA, Wells Fargo getting ready to pay back Tarp

That’s the news coming out of the two TARP recipients, following weeks after some of their competitors have already rid themselves of the onerous government intervention/ownership in their businesses.  While not seeking to pay the full $45bn that has been subsidized by the US taxpayers, Bank of America is looking to give back a little less than half of the TARP money soon – $20bn of additional aid that was given to it by the US government in January when its then current capital was deemed insufficient.  But talks of exit also bring up discussions on the protection the Bank has agreed with the government relating to the losses it incurred from its holdings of both BofA and Merrill Lynch assets.  Dan Fitzpatrick wrote for the Journal Tuesday:

In addition to giving Bank of America extra TARP money, the government agreed in January to absorb a chunk of losses on a $118 billion pool of assets owned by BofA and Merrill. The bank would be on the hook for the first $10 billion in losses, and the U.S. would cover 90% of the remainder.

In exchange for this protection, the bank would issue to the Treasury $4 billion in preferred stock carrying an 8% dividend, costing the bank about $320 million a year. BofA also would pay the Federal Reserve two-tenths of a percent on the $118 billion, or $236 million.

If the bank wanted to end the arrangement, an “appropriate fee” was required. The Treasury and the Federal Reserve are asking the bank to pay between $300 million and $500 million to end this plan and pushing executives to consider a number on the high end of that spectrum, said a person close to the situation. The bank is now considering the request.

See the rest of the news from the WSJ.

Adding to that news, which came out yesterday, is Wells Fargo whose CEO John Stumpf voiced intentions of paying back the full TARP aid “shortly” without the need to do equity offering.  No date was given for the share repurchase.  Stumpf said in an interview with Bloomberg yesterday:

“We will pay it back, but we’re going to pay it back in a shareholder-friendly way,” John Stumpf, president and chief executive officer of the San Francisco-based lender, said yesterday in an interview on Bloomberg Television. “We are now earning capital so quickly, organically, we don’t want to dilute our existing shareholders.”

“We will pay it back shortly,” Stumpf said in the interview. He declined to give a date, saying an agreement depends on talks with the Federal Reserve, adding that he’s confident about reaching an accord. “Of all the issues I’m dealing with, this one doesn’t keep me up at night,” he said.

Get the entire news from Bloomberg.

Despite both news, financials led the sell off in yesterday’s market taking the Dow 185 points lower and the broader S&P losing more than 2%.  BAC was down almost 6.5% while WFC was lower by 4.75%.


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