Top US banks including JP Morgan, Goldman Sachs and Morgan Stanley were waiting to get the green light yesterday to repay billions of dollars in emergency bailout funds to the Treasury, in an eagerly awaited step toward “business as usual” for Wall Street.
Nine of the 19 biggest banks have asked for permission to return more than US$25 billion in funds from the US government’s Troubled Asset Relief Program (TARP), a US$700 billion pool of taxpayers’ money created last September to rescue financial institutions from the brink of collapse.
The banks are anxious to be free of political oversight and are keen to shed the “TARP taint” associated with the money. But their policies on executive pay and bonuses for star traders will still be subject to policing by a “compensation czar” shortly to be appointed by the Obama administration.
Experts say the repayment of the funds marks a key point in Wall Street’s recovery from the financial crisis — although dozens more banks remain dependent on the government’s lifeline and further economic deterioration could cause more damage.
“We’re not out of the woods but we certainly have come to an inflection point in the fortunes of the banking industry as a whole,” said Nancy Bush, an analyst at NAB Research.
“We’re seeing who is in relatively good shape and who has more to do but as for being completely fixed, the answer is no,” she said.
To get the go-ahead to repay public money, banks must prove to the Obama administration that they are sufficiently robust to raise funds and issue debt on the financial markets.
Jason Goldberg, analyst at Barclays Capital in New York, said 17 banks have raised US$45 billion since the end of March. He expects banks including State Street, Northern Trust, Bank of New York Mellon and US Bancorp to gain permission to escape the TARP. Others, including Citigroup and Bank of America, will have to wait after official stress tests last month concluded they need significantly more capital.
But the banks’ freedom will have limits.
The government plans to appoint a prominent Washington lawyer, Kenneth Feinberg, to police executive pay. Firms that have needed more than one round of TARP money, dubbed “double dippers,” are likely to have restrictions on pay toughened. These include Citigroup, Bank of America, AIG and automakers General Motors and Chrysler.
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