Ten US banks to repay Tarp funds

Ten financial groups including JPMorgan Chase and Goldman Sachs were on Tuesday allowed to repay a combined $68bn to the US Treasury in a move that marks a turning point in the economic crisis but formalises the divide between healthy and fragile banks.

The companies, which also include Morgan Stanley and American Express, can now shed the restrictions on pay and hiring that came with the troubled asset relief programme launched last year at the height of the turmoil in global markets.


However, the move raises questions over the competitiveness of other big banks such as Citigroup and Bank of America, which have not yet been allowed to repay the combined $90bn in Tarp money they have received.

The first batch of Tarp repayers includes eight banks that last month were found not to need additional capital after government stress tests. Others allowed to return the funds included Morgan Stanley, which was instructed to raise capital, and Northern Trust, a bank catering to wealthy individuals that was not among the 19 institutions subjected to stress tests.

The repayment by the 10 institutions, which stepped up their campaign to be free of Tarp after Congress introduced constraints on bankers’ pay, is a sign of stability in the financial system. The S&P Financials index has more than doubled since March.


Courtesy: Financial Times

President Barack Obama said: “The financial crisis this administration inherited is still creating painful challenges for businesses and families alike. But it is a positive sign.”

The amount due to be repaid far outstrips a previous “conservative” estimate from the Treasury that $25bn would be repaid this year. The authorities have said they could use the repaid funds to help other institutions such as smaller lenders.

The government still owns warrants giving it the right to buy shares in the banks that received Tarp funds in October last year. The Treasury said banks would be allowed to buy back the warrants at “fair market value”, but the issue is controversial because the securities are difficult to value and banks are anxious not to overpay.

Although the banks set to leave Tarp will escape the most strict rules on compensation, Tim Geithner, US Treasury secretary, told Congress that planned reforms – set to be announced in the next few days – would affect all institutions.

“We need to help encourage substantial reforms in compensation reforms,” Mr Geithner said. “I think boards of directors did not do a good job [before the crisis]. I think shareholders did not do a good job.”

The congressional oversight panel, set up to monitor Tarp spending, on Tuesday recommended a new round of stress tests on the banks because of worsening economic data, such as rising unemployment.

The Treasury declined to identify the banks, but people familiar with the list said they were Goldman, Morgan Stanley, JPMorgan, Amex, Northern Trust, BB&T, State Street, US Bancorp, Capital One Financial and Bank of New York Mellon.