Bell rings, teacher stays

7 May 2009 By Robert Cyran Follow @rob_cyran

The bank stress tests scores are out, and the graduates are keen to repay the government’s investment as fast as they can. That s understandable. The feds should take the money back but shouldn t let industry lobbyists push them into easing the terms of related stock warrants.

This content is for Subscribers only

Context News

The US Treasury released the results of its stress tests on 19 large US banks on May 7. Ten of them need to raise a total of $75bn of new capital, according to the tests. They include Bank of America, Citigroup, FifthThird, GMAC, KeyCorp, Morgan Stanley, PNC, Regions Financial, Sun Trust, and Wells Fargo. Several banks have already raised common equity or said they will do so.

Several banks, including Goldman Sachs, JPMorgan Chase and Morgan Stanley have said they intend to repay funds invested by the US Treasury under the Troubled Asset Relief Programme as soon as possible. Financial institutions hoping to repay the government and release themselves from attendant restrictions will need to show they can raise fiveyear debt without the benefit of a guarantee from the Federal Deposit Insurance Corporation, the Treasury said.

Along with its Tarp investments, the government received warrants worth 15% of the face value of the preferred, exercisable at the common stock price when the deal closed. The American Bankers Association, in a letter to the Treasury, said the warrants ammounted to an onerous prepayment penalty for firms that wanted to pay back the funds as soon as possible. It pointed out many banks did not want to participate in Tarp.

Email a friend

Please complete the form below.

Required fields *