US banking giant Wells Fargo said on Monday it had struck a deal to repay all of the US$25 billion loan it received from the government last year during the financial meltdown.
As part of the deal to buy back the government held stock, the company will launch a US$10.4 billion share offering.
The government had lent the money as part of the multibillion-dollar Troubled Asset Relief Program (TARP), which aimed to prevent a banking sector collapse by bailing out key lenders.
“Now we’re ready to fully repay TARP in a way that serves the interests of the US taxpayer, as well as our customers, team members and investors,” chief executive office John Stumpf said.
“TARP stabilized our country’s financial system when confidence in financial markets around the world was being tested unlike any other period in our history,” Stumpf said.
“Its success also generated financial returns for taxpayers, including US$1.4 billion in dividends paid to the US Treasury,” he said.
The repurchase of TARP preferred stock will, in the fourth quarter, likely reduce common shareholders’ income available by US$2 billion, because “the book value of the preferred stock is less than the amount paid,” the banking giant said in a statement.
In October, however, Wells Fargo welcomed much better-than-expected third-quarter earnings of a record US$3.2 billion — a profit up 98 percent from a year earlier.
Fellow TARP beneficiary Citigroup announced earlier on Monday that it too was repaying US$20 billion in state aid.
Citi said the repayment to the US Treasury Department would result in a loss of some US$8 billion, but would save the firm US$1.7 billion a year in interest.
Meanwhile, US Treasury Secretary Timothy Geithner said on Monday that plans from Wells Fargo & Co and Citigroup to repay taxpayer funds would put the US government on track to reduce its bailout investments in banks by more than 75 percent, while earning a healthy profit for the US.
“With the recent announcements on repayments, we are now on track to reduce TARP bank investments by more than 75 percent, while earning a healthy profit on that commitment,” Geithner said in a statement after the Wells Fargo announcement
A Treasury spokesman said separately that the Treasury was “pleased that Wells Fargo was moving ahead with plans to repay taxpayers back,” adding that the department has repeatedly stated that it never intended to be a long-term shareholder in private companies. He added that replacement of taxpayer funds with private capital increases confidence in the financial system.
“Today’s announcements mean that more than US$185 billion of the US$245 that TARP invested in banks is now slated to be returned to taxpayers — with US$90 billion scheduled to come back just in this month alone,” the spokesman said in a statement. “While much work lies ahead to improve lending and spur job creation, the news from Wells Fargo moves us closer to winding down the government’s unprecedented involvement in the banks,” he said.
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