Whew -- that was fast! It took just eight months for 10 of the nation's largest banks to repay TARP funds. That mid-September week after the collapse of Lehman Brothers seems like a lifetime ago, but it's worth recalling the intensity of that frightening period.
As one banker who was deeply involved in the daily conversations with the government said, "I'm not sure that the public truly understood how close we were to a total financial system explosion."
It was during this extreme period that the US Treasury Department extended the first $125 billion from the $700 billion TARP fund to nine banks under the Capital Purchase Program (CPP). Some of those nine banks were a bit closer to the raging fire than others, but in the end, the government thought it best to spread the funds among all of the largest banks to avoid inducing a public panic at the weaker institutions.
Fast-forward past this year's stress tests and capital raising and I'm happy to report that the house did not burn down. We're a bit singed, but we have survived. Today Treasury confirmed that 10 firms participating in the CPP will get the 100-pound gorilla called Uncle Sam off their backs.
Although Treasury did not name the banks, it looks like they include: JP Morgan Chase, Morgan Stanley, American Express, Bank of New York Mellon, BB&T, Capital One, Northern Trust, State Street, U.S. Bancorp and Goldman Sachs. Under the CPP investment agreements, firms that repay the government's preferred stock investments will also have the right to repurchase the warrants Treasury holds in their firms at fair market value.
For those who think that the government bailed out Wall Street, you're right and you're wrong. Yes, taxpayers extended a lifeline to ensure that the system didn't collapse, but in the case of these yet-to-be named players, taxpayers made out quite nicely. Treasury notes:
In addition to Treasury's potential income from sale of the warrants, these 10 institutions have already paid dividends on the preferred stock totaling approximately $1.8 billion over the last seven months. Dividend payments received for all CPP participants are approximately $4.5 billion to date.
Not a bad eight-month return on $68 billion and surely a heck of a lot better than we're likely to do with the auto industry.
For more on "The Real Price of Life in Bailout Nation", go to moneywatch.com
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