Bank Of America Pays Back TARP Funds 2+ Years Ahead Of Schedule

Bank Of America Pays Back TARP Funds 2+ Years Ahead Of Schedule


In Feb 2009, the company reported this…

Bank of America Corp. expects to pay back U.S. Treasury relief funds within the next three years, and “categorically” does not need further government funding, Chief Executive Ken Lewis told CNBC’s Maria Bartiromo in a televised interview Friday. Bank of America has received up to $45 billion in funds from the Trouble Asset Relief Program.

10 months later…from their press release…

PRNewswire/ — Bank of America today announced that it will repay U.S. taxpayers their entire $45 billion investment provided under the Troubled Asset Relief Program (TARP). The repayment will be made after the completion of a securities offering.

To date, Bank of America has paid $2.54 billion in dividends to the U.S. Treasury on the TARP investment. Repaying TARP will save the company approximately $3.6 billion in annual dividend costs from the TARP investment.

Some of this money is coming from their existing assets, and some of it is coming from an equity sale. But they’re paying it back.

Now, there are those who are questioning if they should be doing that or not. After all, do they have enough capital?

Yes, they do…

After the stock offering and some other capital moves, Bank of America’s Tier 1 capital ratio will stand at 11%, and Tier 1 common ratio will stand at 8.5% — stronger metrics than Wells Fargo, JPMorgan Chase or U.S. Bancorp.

Only Citigroup has higher capital ratios, due to a huge preferred-to-common conversion, but given the government’s large ownership stake and Citi’s long path to reorganization, few expect it to repay TARP in the same manner.

Long story short, we’ve made money on every single TARP repayment so far AND averted a financial meltdown AND unfroze the credit market. Yes, the big banks aren’t completely out of the woods yet, but the brush is getting a lot thinner.

So, to those who claimed that we’d never see this money again…how long before we hear some mea culpas? Especially for those who called for Geithner’s ouster?

Tick tock…

  • Mike

    “Long story short, we’ve made money on every single TARP repayment so far… So, to those who claimed that we’d never see this money again…how long before we hear some mea culpas?”

    I don’t know if we will eventually turn out to have made money or not, but this argument is circular reasoning. Of course we’ve made money on TARP repayments so far. Those who won’t be able to pay obviously *haven’t paid it back yet*. Those who have paid it back are obviously among those that could pay, but that doesn’t mean that the rest will be able to. So I think it’s a little early to be calling for mea culpas. And if the commercial real-estate bubble has yet to burst, it may be too early to say that we averted a financial meltdown. I certainly hope we have, and I hope TARP ends up making money. I’m just saying it’s too early to gloat.

    And in seems to me in poor taste to gloat anyway. Are you saying we shouldn’t have been nervous about lending hundreds of billions to private corporations on the verge of collapse? A little acknowledgment of the risk of that seems reasonable even if we manage to make it work in the end.

  • Frank Hagan

    I think the real reason for the rapid repayments is the “hook” the feds have to set executive compensation for those firms that have received TARP money. Reinstating your mulit-million dollar bonuses is a great incentive to pay the loan back.

    I think BofA was weakened by its acceptance of a government proposal to absorb another financial institution (I don’t remember the name of it offhand). And then the Countrywide acquisition hurt them. While the deal with Countrywide was in place already, BofA wasn’t going to finish the acquisition until Countrywide sold off all the sub-prime loans it held (BofA never carried any sub-prime mortgages). I think they accelerated the Countrywide deal to please the Fed.

    Anyway, unlike the stimulus (an exercise best described as “pork-a-polooza” or welfare to irresponsible state governments) the TARP funds were loans that have to be paid back. Much like the Chrysler bailout in the 1980’s, it was sold as a scheme that could result in net gains for the Treasury.

    Geithner should go (and Summers, and Bernanke) because they are all part of the same group of a few dozen who created the problem they are now trying to solve. Their answer has always been to just entrust them with more money to solve the problems they created by amassing so much money in the first place. But even a street walker looks like a financial genius on payday.

  • Alistair

    Well now that Bank of America has paid back the tarp money perhaps President Obama can now use it to create jobs in 2010 according to the huffington post.

  • gerryf

    Well Frank, I agree with much of what you say, but don’t you think you’re painting with a pretty borad brush there when you say the stimulus bill is best described as “pork-a-palooza”?

    WHen you look at the stimulus bill, 34 percent was tax relief. Of the entire bill, about $308 million can be called discretionary spending. $48 billion of that goes to infrastructure spending. So, we have a total of about $260 billion that can be considered “potential pork.”

    How much of that was necessary to cajole the GOP votes needed to get it passed? (and how many GOP folks after stuffing their pockets then went home to decry tax and spend liberals?). I dunno. How much was need to keep the party faithful in line on the Dems side? Again, I dunno.

    But I do know that with consumer spending going in the tank, the government needed to step into the void to keep the economy going. I absolutely love the right decrying this philosophy even when its biggest chamption (Reagain) has been deified by the GOP.

    Were there better stimulus bills…oh yes. But it was the only bill that could get passed. Without, things would have been much worse.

  • Tully

    Mike nailed it. Of course we’ve made money on repaid TARP — by definition. How much un-repaid TARP have we made money on? How much TARP is still outstanding?

    Note particularly that BoA’s “repayment” will be the proceeds of issuing new stock and utilizing “excess liquidity” (unused TARP funds), not of actually “earning in” the money to pay the debt. They’re just swapping new equity and unspent TARP funds for the TARP debt, which means existing BoA shareholders will see their stock values diluted. Which has been the story with ALL the repayments to date.

    Frank, the acquisition you’re thinking of was Merrill Lynch, which the feds essentially forced BoA to purchase … or else, for $50B. BoA shareholders lost well over $300B as the details of how bad off ML was became public. They’ve only managed to gain back about $100B of that as BoA stock has very slowly recovered.

    But hey, the government made $2.5B in vig and got the nut back, so let’s all celebrate, eh? As long as you’re not a BoA stockholder.

  • Brad Templeman

    I think of TARP as a necessary evil, but people have varying reasons for calling for Geithner to resign. A lot of liberals are unhappy that he is not gung-ho about breaking up the banks and is too close to Wall Street. He’s in a tough position because he is a pragmatist and Obama’s base wants an ideologue.

  • Frank Hagan

    gerryf, “tax relief” can be pork also. The reduction in withholding rates will end up costing many Americans at the end of the year; I got stung by it when President Clinton used the same trick.

    And “infrastructure projects” are especially subject to “pork” … in fact, most pork IS hidden behind that phrase.

    The Democrats have huge majorities in both houses and don’t need a single Republican vote to pass their initiatives. The lack of even trying to appear bi-partisan is proof of that. Not a single Republican voted for the stimulus bill in the House … not one. Three Republicans supported it in the Senate, and one of those has subsequently switched parties.

    TARP had bi-partisan support because it was passed by a Democratic congress and a Republican President who recommended it. Bush was 1000% more bi-partisan than President Obama has been, mainly because he had to be. After the 2010 mid-terms, President Obama will make a big show of being more bi-partisan as the huge majorities in the House and Senate are trimmed.

  • Nick Benjamin

    They tried to get GOP votes on the stimulus. The fact that they didn’t get any is more down to the GOP’s insistence on opposing everything Obama wants than Dem behavior. Granted they probably wouldn’t have gotten all 178 GOP votes if the GOP leadership had been less stubborn, but they would have gotten a few guys.

    In the Senate they actually did get GOP votes. Not many, but some. Spectre left the party largely because the backlash from wihin the party was much stronger than he expected.

    Baucus tried his damnedest to get GOP support on health reform. The “Gang of Six” that dominated Senate Finance Committee health deliberations for months included three Republicans (Enzi, Grassley, and Snowe).

    Pelosi actually did get a Republican vote for her much more leftwing health bill: Joseph Cao.

  • Frank Hagan

    Nick, I mentioned the three Senators, including one who jumped ship shortly thereafter. But to say the Dems have been a model of bi-partisanship misses the mark by several miles: the GOP hasn’t been included in any of the drafting of the recent bills with one notable exception: Sen. Bachus’ health care bill.

    The rest have been brought to the House floor, often with substantial amendments just hours before a vote, without the opposition being able to even read them. The Dems haven’t played nice, and the reason is that they have huge majorities. Not a single bill has failed to pass because the GOP has voted against it. They have failed to pass because the Dem leadership are so far to the left that even members of their own caucus vote against the bills.

    Usually in this kind of case the party in power has the ability to pull in members of the other party who agree with some of the aims of the issue. But the Dems are too far left for most of the freshmen Dem Congressmen. This year, the Dems have to resort to massive pork spending, such as the new Louisiana Purchase for DEM Senator Mary Landrieu:

    On the eve of Saturday’s showdown in the Senate over health-care reform, Democratic leaders still hadn’t secured the support of Sen. Mary Landrieu (D-La.), one of the 60 votes needed to keep the legislation alive. The wavering lawmaker was offered a sweetener: at least $100 million in extra federal money for her home state.

    And so it came to pass that Landrieu walked onto the Senate floor midafternoon Saturday to announce her aye vote — and to trumpet the financial “fix” she had arranged for Louisiana. “I am not going to be defensive,” she declared. “And it’s not a $100 million fix. It’s a $300 million fix.”

  • Nick Benjamin

    Nobody plays nice in the House. When the media asked a long-gone house leader (IIRC Tip O’Neill) what rights the other party had he said “they can collect their paychecks.” Gingrich was not precisely a bipartisan leader, and his de facrto succesor (Tom Delay) was known as “the Hammer.”

    You’re gonna have to go back a long way to find bills that were killed because the Minority leader disliked them. Probably the 60s or 70s. And then it only worked because the Dems were schizo — Southern Conservatives and big-city Liberals do not a united coalition make.