Bankruptcy

Why Banks Are Re-Paying TARP Money

By mcbride

According to one author, the sudden desire to re-pay TARP money is all about the money baby.  ?In October, Feinberg issued compensation guidelines for the companies receiving special assistance, including Citi and Bank of America. That, and the approach of the bonus season, lit a fire under executives at the largest remaining TARP recipients. In the second half of 2009, they were spurred into a manic frenzy. They cut costs, shrank their balance sheets, and raised capital from new investors.  Look what’s happened in the past two weeks. First, Bank of America agreed to pay back $45 billion in TARP funds. Bank of America found that the pay restrictions were complicating the search for a new boss to replace Ken Lewis. It raised $20 billion from the public and agreed to sell $3 billion in assets. The smaller, leaner, better-capitalized bank was able to hire a new CEO on Wednesday?. Among the three, that’s $90 billion in repayments to the taxpayers in a week and more than $50 billion raised from the public. Of course, these offerings came at a cost. The banks essentially created new shares and sold them to investors at a price below the prevailing market price. They diluted existing shareholders, which is what is supposed to happen when companies suffer losses and need to raise capital.?

Here is a link: http://www.slate.com/id/2238993/

Michael

Full post as published by Texas Lawyer Blog on December 18, 2009 (boomark / email).