US banks scramble to repay bail-out cash - Five or six lenders to be allowed priority

US banks scramble to repay bail-out cash - Five or six lenders to be allowed priority
By Francesco Guerrera in New York and Krishna Guha in Washington
Copyright The Financial Times Limited 2009
Published: May 18 2009 22:25 | Last updated: May 19 2009 00:33
http://www.ft.com/cms/s/0/d8557f30-43ef-11de-a9be-00144feabdc0.html


US banks are scrambling to be in the first wave of lenders to repay Washington bail-out funds after the authorities told Wall Street executives they would allow five or six big financial groups to return taxpayers’ money before the rest of the industry.

Bankers said they expected the Treasury and Federal Reserve – which doled out billions of dollars from the $700bn troubled assets relief programme to lenders last year – to name the first repayers in the next few weeks.

The authorities decided to allow a group of banks to return the funds, rather than approving individual applications, to avoid a “rush for the exit” by lenders vying for bragging rights of being the first to repay, said people close to the matter.

The timing of the repayment and the number and identity of the banks in the first wave is still under discussion.

Goldman Sachs, JPMorgan Chase and American Express, which were found not to need additional equity in the recent stress tests, are almost certain to be in the first grouping.

American Express has drastically tightened its belt in recent months as growing unemployment has made it harder for borrowers to repay debt. The company on Monday said it was undertaking a $800m cost-saving scheme that would cut 4,000 jobs.

Morgan Stanley, which has raised equity and debt and has said it is well-capitalised to withstand a worsening in the economy, is pressing to be one of the early repayers. The Wall Street bank on Monday moved to raise more funds by announcing the sale of its remaining shares in MSCI, the index provider, in an offering that could raise $600m.

But it is unclear whether Morgan Stanley and others seeking to make early repayments – such as State Street, which on Monday raised $1.5bn in stock and $500m in debt – will be in the first wave.

The banks and the authorities declined to comment.

Healthier banks also hope that by returning taxpayers’ funds, they would gain an edge on more troubled rivals such as Citigroup and Bank of America, which are expected to remain in the programme for several months.

The Treasury has estimated banks will pay back about $25bn over the next year but the sum could be much higher. Goldman and Morgan Stanley received $10bn each in assistance in October. JPMorgan received $25bn while American Express was given $3.4bn.

BofA is believed to have raised $3bn-$4bn over the past 10 days by selling more than 250m new shares through an “at the market” operation, according to a report issued on Sunday by Keith Horowitz, a Citi analyst.

Financial stocks rallied on Monday helping the S&P 500 to return to positive territory for the year.

Additional reporting by Greg Farrell, Deborah Brewster, Saskia Scholtes and Michael MacKenzie