Several major banks are seeking permission to repay government bailout funds, and JPMorgan Chase & Co expects repayments to begin within the next couple of weeks.
Regulators are talking to several big banks that want to repay funds received under the government's Troubled Asset Relief Program, or TARP, a Federal Reserve official said on Tuesday. No announcements on returning TARP funds will come until around June 8, the official added. The Fed official spoke on condition of anonymity because the application process is ongoing.
Goldman Sachs Group Inc, Morgan Stanley and JPMorgan recently submitted applications seeking permission to repay TARP funds, people familiar with the situation told Reuters. The three banks declined to comment.
Earlier on Tuesday, JPMorgan Chief Executive James Dimon told shareholders he expects regulators will let a few strong banks repay TARP funds within weeks.
We believe we can and should be able to repay TARP, Dimon said during remarks at his bank's annual meeting. We believe the government will allow a few well-capitalized banks to repay TARP in the next couple of weeks.
JPMorgan shares closed down $1.45, or 3.89 percent, on Tuesday on the New York Stock Exchange.
There are so many banks talking about repaying TARP that it's already priced in, explained Greg Donaldson, director of portfolio strategy at Donaldson Capital Management in Evansville, Indiana.
Banks have been eager to repay TARP money because it comes with several conditions, including limits on executive bonuses and the hiring of foreign workers.
It's not going to be a big deal stock-price wise, but it is a huge deal competitively that they can use to their advantage, Donaldson said.
Repaying the government funds will take the handcuffs off the management of these companies, agreed Brad Hintz, analyst with Sanford C Bernstein in New York.
What I've told my clients is: 'You want to be the first one out of TARP and you certainly don't want to be the last one,' Hintz said.
TAKING DOWN TARP
Last October, the Treasury stepped in with $125 billion of bailout funds for nine of the largest U.S. banks, part of a $700 billion plan to stabilize a system rocked by the collapse of Lehman Brothers. Regulators wanted banks to have enough capital to continue lending during one of the worst recessions since the 1930s.
Banks asking to repay TARP are among the 19 institutions that submitted to government stress tests to determine their ability to withstand a sharp economic downturn, the Fed official said. Supervisors will seek more information from the banks and then recommend to Treasury whether to approve repayments.
Recommendations will be made in batches, not on a case-by-case basis, the official said. Going forward, supervisors will make repayment recommendations to the Treasury on a monthly basis, the official added.
Before they make repayments, banks must show they can raise funds from private sources without any government guarantees.
These conditions have sparked a wave of stock and debt sales in recent weeks.
Government officials have expressed concern that banks, in their eagerness to sever government ties, may return the capital too soon, only to need it again later.
JPMorgan, which received $25 billion in funds in October, and Goldman, which received $10 billion, were found by the stress tests to have sufficient capital. Morgan Stanley received $10 billion in October and had a small capital shortfall under the stress tests, quickly erased by stock and debt sales.
Separately, the Federal Deposit Insurance Corp is looking to launch its June pilot sale of banks' distressed loans without using TARP money to help private investors buy up the loans, a source familiar with government plans told Reuters on Tuesday.
The FDIC is looking to do a test sale to make sure that investors, banks and the public are comfortable with the mechanics -- without the complication of government co-investment -- before rolling out the full program.
Some potential investors have expressed concern that loan purchases done in partnership with government money from the TARP could expose them to executive pay restrictions and other TARP conditions.
(Reporting by Joseph Giannone; Additional reporting by Elinor Comlay and Steve Eder; editing by John Wallace and Gerald E. McCormick and Carol Bishopric)