Is Repaying TARP Good for Bank of America (and Taxpayers?)

[Hannah Bell]

The Bank of America stock offering, which will be used to repay the TARP, went off well, so surely this means the Charlotte bank is on the mend and its finances are sound, right?

Chris Whalen, who is an expert on the banking industry and has a proprietary database that measures the risk of individual banks, doesn’t buy it:

We are reaffirming our “negative” outlook on operating results for BAC….

We…look at the specific transaction proposed by BAC, we see the repayment of government TARP equity and a $20 billion reduction in the overall capital of BAC at precisely the time when the Fed is withdrawing many forms of subsidies for the largest banks. Assuming that BAC can place $18.8 billion in new securities and sell $4 billion in assets at valuations that do not generate capital losses, the consolidated entity ends up with $20 billion less capital on a consolidated basis than today...

Scrimping on capital to show better returns to allow for bigger bonuses is looting, and it’s what got us in this mess in the first place. But here the authorities are now enabling this process, because “paying back the TARP,” no matter what the true costs and risks are, validates Obama’s economic programs.

http://www.nakedcapitalism.com/

[AllentownJake]

1. The way lending works is if you take 45 billion of capital off your balance sheets

You need to raise more capital to reach the lending ability you had before it was removed.

If you believe that credit is the life blood of the American economy it is a bad thing.

[FBaggins]

4. That's true enough... But

That depends on whether you need the extra lending ability in the first place. If you're trying to make loans but can't find enough borrowers, then borrowing capital (and obviously paying for it) doesn't neccessarily help.

[FrenchieCat]

2. If they think they can replace it, then that's a good thing.

Since they don't need it,
perhaps the Government can use it
and create a real jobs program....
so I can't worry about how Bank of America is feeling
right now.

[FBaggins]

3. It had better be

Or the new CEO won't be worth hiring.

Think about it. They need to out from under tarp so that they can pay market rates to the new CEO. But if it's bad for the co
pant overall to do this, then what person qualified to run the company would take it???

If the extra capital is necessary to run the company safely, then the prospective CEOs should say "don't do it... Hire me now and pay me more later once we save the company" - the alternative means tha they'll more likely get one of those "me first" execs just looking for a golden paraglider.

Otoh -it's certainly possible that they don't need the money any longer. If they're lending to every credit-worthy borrower who walks in the door and still can't put the capital to work... Why pay interest on it?

[HamdenRice]

5. Well at least Hannah is able to write the word "repay" instead of "giving money no strings attached"

This is a mind blowing sea change! Maybe it's a result of reading something other than World Weekly Socialist News!

So you don't think that they were just shoveling money out of the back door of the Treasury, no strings attached, and can comprehend the idea of TARP being repaid?

So now your gripe is repaying is bad for BAC's balance sheet?

I suppose in a bizarro world kind of way, that's progress.

[Hannah Bell]

6. bite me, hampton.

[HamdenRice]

7. Why not address the issue: Do you now believe that TARP funds are being repaid? nt

[OHdem10]

8. Sheila Baird has apparently warned the Government to be wary.

Consider the possibility they may be trying to pay back to get
out of Government rules. Will they just as quickly start back
giving the obscene bonuses once out from Government Rules.
Some fear they will go back to the same old Wall Street games
as before the crisis.

[stray cat]

9. If someone pays you back the money they owe you are you glad?

[FBaggins]

11. Depends on your perspective

If you think that they need the capital in order to play their role in the economy (the only reason you were willing to save them in the first place) they you might be upset that they're paying it back.

If you think that they don't need the money and you're upset that we gave it to them in the first place... then you would probably be happy that you haven't lost it.

[blindpig]

10. k&r