Evidently remaining true to his stated goal of paying back TARP funds before he retired at the end of 2009, Ken Lewis and Bank of America (NYSE:BAC) announced they’ve reached an agreement with the government to pay back the $45 billion they owe in TARP funds sometime in the next several days.
The bank said it will repay the TARP funds by the sale of $18.8 billion in common equivalent securities, along with $26.2 billion in “excess liquidity.” Documents should be signed sometime this week to cement the deal.
Responses to the announcement were predictably mixed, but most overall supported the decision to get the government off the back of the banking giant, saying it has largely been the reason no replacement could be found for outgoing CEO Ken Lewis, as restrictions from the Obama administration concerning executive pay and bonuses, along with intense oversight and scrutiny, kept anyone with a sane mind from seriously considering taking the position. That could change once the funds are paid back.
While there is some risk in paying back the TARP funds at this time, the risk seems to be minimal and relegated to the short term. Even so, the number of short term investments included on their balance sheet offers good protection; so in general, Bank of America should be okay there too.
Even with the risk still inherent in the global economic crisis, which remains far from over, it seems Bank of America was enmeshed in a web they couldn’t escape unless they repaid the government. The government wasn’t going to keep their hands out of the company, as the many restrictions accompanying the TARP funds showed, which of course made it about impossible to seriously recruit a qualified CEO for the banking giant.
So unless they took care of TARP, they were going to be mired down for some time to come. With that in mind, this seems to be the best move for Bank of America, as it removes the shackles of the government from its operations and it can start operating more freely in market conditions.
Overall this should be considered a positive move by shareholders and investors, and it shouldn’t take too long for the company to replenish its capital base and work for a strengthened position.
