Wednesday, May 20, 2009

US Banks Giving Money Back - Good Problems To Have

Now that 3 major banks have applied to return TARP funds, we have the confusion that a seemingly positive move is being viewed with possible negative ramifications. By allowing them to give money back means they will no longer be under the "jurisdiction" of the US government. This will mean that they are more open to give out good salaries and good bonuses without having to consider the views or pressure from the government. This will allow the to recruit "better staff" who will be lured with a more generous compensation scheme. It is likely that the government will be delaying these 3 banks to give money back until more banks are at a better footing so as to be not be disadvantaged by the developments. Overall, these are good problems to have.


Goldman Sachs and Morgan Stanley have formally asked the Federal Reserve for permission to repay a combined U$20 billion (S$29 billion) in federal bailout money.

The requests are pending, and no decision has been made on whether the investment banks will get approval to repay the money and sever ties with the Troubled Asset Relief Programme, according to two people familiar with the matter.

A JPMorgan spokesman declined to comment on whether the bank also has requested permission to repay. Goldman Sachs and Morgan Stanley representatives also declined to comment.

The Federal Reserve, the main regulator for all three banks, would have to approve any decision on repaying bailout funds.

Goldman and Morgan, which each received US$10 billion, initiated talks with the Fed in the past few weeks, according to the people.

The banks were among nine large financial institutions that took an initial US$125 billion in bailout money in October after the collapse of Lehman Brothers threatened to trigger a financial catastrophe.

If their requests are approved, Goldman and Morgan would be the first among the nine banks to repay bailout money. Twelve smaller banks have returned nearly US$1.2 billion in government money so far.

More than 570 banks have received about US$198 billion in bailout funds. Banks that want to repay bailout money must be able to replace the funds by raising capital without guarantees from the Federal Deposit Insurance Corp.

The issue of repaying the money is a sensitive one for the government. By allowing strong banks to abandon the bailout and its restrictions, it risks putting weaker banks at a disadvantage, analysts say. A big concern is that high-level employees of bailed-out banks could defect to rivals that have paid back the funds.

The government 'stress tests' on the 19 largest US banks found that 10, including Bank of America Corp and Citigroup Inc, needed to raise additional capital to survive a worsening recession.

Goldman Sachs and JPMorgan were among the nine banks found to have enough capital. Morgan Stanley needs an extra US$1.8 billion in capital, the stress tests ruled. The bank has already begun raising the money through stock offerings

p/s photo: Choi Jeong Won

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