BofA plans swift payback of Tarp funds

BofA plans swift payback of Tarp funds
By Greg Farrell and Saskia Scholtes in New York
Copyright The Financial Times Limited 2009
Published: March 25 2009 21:01 | Last updated: March 26 2009 00:09
http://www.ft.com/cms/s/0/989391c4-197a-11de-9d34-0000779fd2ac.html


Bank of America has added its name to the growing list of major US banks that are seeking to pay back as soon as possible the funds borrowed under the government’s bank recapitalisation scheme.

Ken Lewis, BofA chief executive, said in an interview published on Wednesday that he hoped to start paying back $45bn in taxpayer funds in late April, after the results from the Treasury Department’s first round of “stress tests” are issued. The tests are designed to separate strong banks from the weak.

If the capital markets continued to improve, he added, BofA wanted to repay the entire $45bn by the end of 2009.

Mr Lewis’ pledge, in an interview with the Los Angeles Times, to pay back the money from the troubled asset relief programme as soon as possible came on the same day as Goldman Sachs confirmed that it planned to pay its entire $10bn Tarp stake back, possibly by the end of April, following the disclosure of “stress test” results.

While the major US Tarp recipients have said they plan to pay back the funds as soon as possible, populist outrage in Washington against bankers – which manifested itself last week in a proposal to tax bonuses of Tarp recipients at 90 per cent – seems to have crystallised the notion among US bankers that the sooner they divest themselves of government funding the better.

Northern Trust, a custody bank specialising in asset management for institutions and wealthy private clients, has also pledged to pay back its Tarp money as soon as possible. The bank attracted public ridicule last month for its sponsorship of a golf tournament in southern California, the Northern Trust Open, which featured VIP treatment of its guests.

“Right now, there’s going to be a race to see who can pay back Tarp fastest,” said Carole Browner of Luna Analytics. “There are too many stipulations on what banks can and can’t do if they have received Tarp money”.

But whether banks such as BofA can afford to pay their Tarp money back is another matter, says Richard Staite of Atlantic Equities. “It’s clear that regulators in the US and globally want banks to significantly strengthen their capital ratios at this point, and paying back Tarp at the end of April would be contrary to efforts to stabilise the financial system”, he says.

Given that BofA is still trying to digest two major acquisitions that saddled the group with bad assets – Countrywide Financial and Merrill Lynch – Mr Staite doesn’t think BofA should be in any rush to get out of the Tarp programme.

Separately, Moody’s Investors Service cut the credit ratings of Bank of America and Wells Fargo on Wednesday, including slashing ratings on their preferred stock to junk, citing concerns the banks’ capital ratios would remain under pressure, increasing the likelihood that further government support would be needed.

BofA’s pledge to pay back Tarp funds comes as a group of US and European pension funds sought to consolidate 11 shareholder lawsuits into one class action against BofA for not warning investors about the depths of Merrill Lynch’s problems prior to the December 5 shareholder vote.