09 Jun 2009, Peter Madigan, Risk magazine
The US Treasury confirmed that 10 of the largest US financial institutions participating in the Capital Purchase Program (CPP) portion of the Tarp scheme "have met the requirements for repayment established by the primary federal banking supervisors" and are now eligible to complete the repayment process.
The Treasury did not name the 10 institutions in question, but the individual banks involved announced their participation separately. JP Morgan confirmed it intends to repay the $25 billion preferred stock investment it accepted through the Tarp "in full and with accrued dividends at a closing time determined by the US Treasury".
Morgan Stanley and Goldman Sachs will each repay the $10 billion in Tarp capital they both received in October 2008, while American Express will repurchase $3.39 billion of preferred shares and North-Carolina-based BB&T will pay approximately $3.13 billion to the Treasury to buy back its preferred stock, plus accrued and unpaid dividends.
Bank of New York Mellon confirmed it has raised $2.9 billion towards the repurchase of $3 billion in Tarp capital and Virginia-based Capital One announced it expects to repurchase the $3.55 billion in preferred shares the company issued to the US Treasury in the coming weeks.
State Street will repay all $2 billion of the preferred shares it issued the government, while Minnesota-based US Bancorp will redeem $6.6 billion of preferred stock and Chicago-based Northern Trust will buy back $1.58 billion in equity from the Treasury.
Major banking institutions excluded from the list of redeeming banks include Citigroup and Bank of America – both of which accepted an initial $25 billion in the first round of Tarp payments. Each have since seen the level of Treasury funding they have required balloon to $45 billion.
Wells Fargo, the other major US institution to receive $25 billion in the October 2008 round of funding, was also excluded. The Treasury's Supervisory Capital Assessment Program stress tests concluded in May that the California-based banking giant required an additional $13.7 billion to increase its capital reserves to protect against a deepening of the recession over the next 18 months.
Returning Tarp funds will allow banks to escape the government restrictions on the hire of non-US nationals and executive compensation imposed on institutions that have accepted public money. In a statement yesterday, JP Morgan acknowledged executive compensation was an ongoing concern for the bank and pledged to "pay employees based on long-term risk-adjusted performance and pay a significant portion of compensation in company stock" while mandating that senior executives retain at least 75% of their equity awards.
Since the CPP was launched in October, more than 600 banks across the US have participated in the scheme, amounting to $199 billion in investments, from the initial $250 billion fund allocated to the programme from the $700 billion Tarp war chest.
This is not the first round of repayments the Treasury has received, however. Between November 2008 and January of this year 20 smaller banks repaid approximately $2 billion, with sums as large as $361 million returned by Minnesota-based TCF Financial down to the relatively meagre $4.9 million repaid by California-based First ULB.
These existing repayments will bring the amount recouped by the Treasury so far to approximately $70 billion, not including the $1.8 billion in dividend payments from preferred stock and warrant holdings it has received from the 10 institutions repaying funds over the past seven months.
Dividend receipts received by all CPP participants are approximately $4.5 billion to date and will be added to the to Treasury's general account to help to reduce US borrowing and national debt.
Tarp repayments – June 2009
JP Morgan – $25 billion
Morgan Stanley – $10 billion
Goldman Sachs – $10 billion
US Bancorp – $6.6 billion
Capital One – $3.55 billion
American Express – $3.39 billion
BB&T – $3.134 billion
Bank of New York Mellon – $2.9 billion
State Street – $2 billion
Northern Trust – $1.576 billion
Tarp repayments – November 2008 to January 2009
TCF Financial – $361 million
Washington Federal – $200 million
First Niagara – $184 million
Sterling Bancshares – $125 million
FirstMerit – $125 million
Signature Bank – $120 million
Old National Bancorp – $100 million
Iberiabank – $90 million
Sun Bancorp – $89 million
Independent Bank – $78 million
Texas Capital Bancshares – $75 million
SCBT Financial – $64 million
Berkshire Hills – $40 million
Bank of Marin – $28 million
Alliance Financial – $27 million
Shore Bancshares – $25 million
Centra Financial Holdings – $15 million
First Manitowoc Bancorp – $12 million
Somerset Hills Bancorp – $7 million
First ULB – $4.9 million
See also: Treasury silent on Tarp as banks submit $75bn SCAP capital plans
US banks require $74.6 billion in additional capital, stress tests reveal
Stress-test success masks bigger problem with banks