Good news-- Bank of America has announced repayment of its share of $45 billion TARP funds by the end of the year:
NEW YORK, Dec 2 (Reuters) - Bank of America Corp (BAC.N) said it would repay $45 billion of taxpayer bailout funds, a move that could free the top U.S. lender from pay curbs as it looks to hire a new CEO, but also makes it more vulnerable to further economic shocks.
This was not expected and comes as a surprise. It appears that the reason Bank of America is motivated to do this is that they want to escape the pay restrictions of Kenneth Feinberg. The CEO, Ken Lewis, announced his retirement earlier in the year and the company is in a search for a new CEO. It appears it has had a tough time finding a person willing to take the job.
Apparently the people they want to hire as CEO think the company is too big:
At least two candidates for the top job at Bank of America Corp. told directors that the giant bank should consider breaking itself up, but board members in charge of the CEO search have rejected the idea at least for now, according to people familiar with the situation.
The bank's release from Feinberg's restrictions clear the way for the following:
Bank of America Corp (BAC.N) on Wednesday announced cash awards that could reach seven figures for three senior executives, including two whose salaries were cut after a review by White House pay czar Kenneth Feinberg.
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The Charlotte, North Carolina-based bank said each stock unit has the same economic value as one Bank of America share. It said the units are payable in cash in monthly increments beginning in January 2011 and ending in December 2013.
How much do you want to bet this would not have happened if Feinberg had not played tough? Ken Feinberg is the real winner here, IMO. He is making it difficult enough for companies under TARP that they are highly incentivized to repay it quickly. Nothing incentivizes them more than their own pockets!
This announcement leaves only Citigroup and Wells Fargo as major TARP recipients, but almost all other smaller banks have still not repaid. Prior to today, Morgan Stanley, Goldman Sachs, American Express, Bank of New York Mellon, Capital One Financial, State Street, Northern Trust, BB&T and U.S. Bancorp have already announced repayments. In each of these cases, taxpayers received dividends.
In this case, it is unclear if taxpayers will receive immediate interest but it appears that the Treasury will still hold on to warrants, which can be sold at auction. The Treasury will auction 12.7 million warrants it received from Capital One Financial tommorrow. The government still holds warrants of 261 banks, out of which only 15 have paid back the bailout money but have not repurchased their warrants yet.
Overall this seems like good news but it depends on the banks staying healthy. If any of these banks got into trouble again, Treasury would be extremely embarrassed.