Bank of America Corporation (BAC) said on Wednesday that it has repaid the entire $45 billion of bailout money it received from the government for its participation in the Troubled Asset Relief Program (TARP) at the height of the credit crisis last year and after its purchase of Merrill Lynch & Co. earlier this year.
The repayment of TARP money followed BofA’s recent completion of a $19.29 billion securities offering. BofA funded the repayment through a combination of cash from its corporate fund and the sale of securities. The securities shall be converted into common stock.
The move will free the bank from government involvement in its affairs and pay restrictions, even though Treasury will hold BofA warrants. Also, the TARP repayment will make it easier for the bank to recruit a new chief executive to replace outgoing CEO Ken Lewis.
Initially, BofA received $25 billion as part of the bailouts. Then the bank received an additional $20 billion in January 2009 after its acquisition of Merrill Lynch, which had billions of dollars in losses not anticipated by BofA.
BofA’s pay back of TARP money has increased repayment pressure on Citigroup (C) and Wells Fargo & Company (WFC) which have also received bailout money from the government.
Some large financial firms that have already repaid government funds are JPMorgan Chase & Company (JPM), Morgan Stanley (MS), Bank of New York Mellon Corporation (BK), Goldman Sachs (GS), U.S. Bancorp (USB), American Express Company (AXP), BB&T Corporation (BBT) and State Street Corporation (STT).
With BofA’s payment, the total amount of TARP money repaid so far totals $116 billion. The Treasury expects a total of $175 billion of TARP repayment by the end of 2010.
The repayment of TARP money can be viewed as a sign of recovery of the institutions as well as the economy. The Government intends to use the repaid TARP funds to create new jobs and cut the nation’s fiscal deficit. Also, the full repayment of government money has enabled these firms to protect their executive compensation packages. Restrictions on pay rules as a result of absorbing government money were a major competitive disadvantage for these firms in retaining talented employees.
Read the full analyst report on “BAC”
Read the full analyst report on “C”
Read the full analyst report on “WFC”
Read the full analyst report on “JPM”
Read the full analyst report on “MS”
Read the full analyst report on “BK”
Read the full analyst report on “GS”
Read the full analyst report on “USB”
Read the full analyst report on “AXP”
Read the full analyst report on “BBT”
Read the full analyst report on “STT”
Zacks Investment Research
