U.S. Said to Plan Approval Today for 10 Banks to Repay TARP

By Robert Schmidt and Christine Harper
June 9 (Bloomberg) -- The Treasury is preparing to
announce today it will let 10 banks buy back government shares,
people familiar with the matter said, signaling confidence some
of the largest U.S. lenders won't again need a taxpayer rescue.
JPMorgan Chase & Co. is among those cleared to repay
Troubled Asset Relief Program funds, a person said on condition
of anonymity. Goldman Sachs Group Inc., American Express Co.
and State Street Corp. are also among those that have sold
shares and debt unguaranteed by the government, demonstrating
they can raise funds without federal aid.
The approvals may relieve investor concerns about
government ownership after a popular outcry against bailouts
for Wall Street. At the same time, they contrast with warnings
from International Monetary Fund chief Dominique Strauss-Kahn
and others that the financial system remains distressed.
"None of this means that we're out of the woods yet;
there's a lot of work that the banks have to do and the
regulators have to do," said Richard Spillenkothen, a director
at Deloitte & Touche LLP in New York who served as the Federal
Reserve's head of bank supervision from 1991 until 2006.
The Fed yesterday also approved capital-raising plans at
the 10 banks judged to have shortfalls after last month's
stress tests on the 19 biggest U.S. lenders. That list includes
Citigroup Inc. and Bank of America Corp., firms that have had
more than one round of federal rescues.

Compensation Guidelines

On June 10, the Treasury will likely release its
guidelines for executive compensation at banks that retain
government shares, a person familiar with the matter said.
Treasury Secretary Timothy Geithner may be asked about the
TARP repayments, compensation rules and the outlook for
financial markets in a Senate Appropriations Committee hearing
at 10:30 a.m. today in Washington.
Nine of the 19 banks subjected to stress tests by U.S.
regulators were told last month they needed no additional
capital to withstand a deeper economic downturn. Officials
later told some of the banks, including JPMorgan and American
Express, they still needed to boost their common equity.
The number of banks likely to be allowed to retire
government shares indicates the Treasury will receive more than
the $25 billion of repayments that the department anticipated
this year. JPMorgan alone received $25 billion of TARP funds
last year and Goldman Sachs got $10 billion. American Express
has received $3.4 billion, Bank of New York Mellon Corp. has
taken $3 billion and State Street has $2 billion.

Morgan Stanley

Morgan Stanley has raised $6.8 billion in two separate
common equity offerings since May 7, exceeding the $1.8 billion
it was required to raise by the stress tests, as the company
sought to be included in the first round of banks allowed to
repay the TARP money. Morgan Stanley received $10 billion from
program last year.
The repayments come almost eight months after the Treasury,
seeking to quell market panic that followed the Sept. 15
bankruptcy of Lehman Brothers Holdings Inc., provided nine
banks with the first $125 billion of $700 billion in money
allocated to the TARP.
Banks have unveiled plans to raise a total of $100.2
billion since the stress tests found 10 of the 19 biggest
lenders needed $74.6 billion in additional capital buffers.
Financial shares have surged on rising confidence that the
financial crisis is past its worst and that banks are viable
enough to survive the deepest recession in half a century. The
Standard & Poor's 500 Financials Index has gained 49 percent in
the past three months.

Retire Warrants

Even after paying back the preferred shares issued to the
government, banks that took TARP money will still need to
retire warrants given to the government to allow taxpayers a
potential return on their investment.
Herb Allison, the Obama administration's nominee to run
TARP, told lawmakers last week that the Treasury would soon
announce details of its policy handling the warrants. The total
value of the warrants is about $5 billion, according to
Treasury calculations made last month.
Some analysts estimate that banks will still face mounting
losses as defaults on credit cards rise and commercial property
values sink.
Jan Hatzius, chief U.S. economist at Goldman Sachs, said
at a conference in Montreal yesterday that "U.S. banks
probably need to recognize another $500 billion or so in
losses."
Strauss-Kahn, managing director of the IMF, said at the
conference that banks must disclose any losses on their balance
sheets to help restore confidence in the global financial
system.
"If the banking crisis is not resolved, growth will not
come," Strauss-Kahn, speaking in French, told reporters after
his speech. "What strikes me today is that the credit market
is not yet functioning normally."