Bank of America’s announcement to repay its TARP loans likely won’t be followed by other large-cap banks, including Citibank (NYSE: C) and Wells Fargo & Co (NYSE: WFC).
Bank of America (NYSE: BAC) said on Wednesday that it plans to raise $20 billion worth of new capital to repay loans under the Troubled Asset Relief Program. After Bank of America eliminates its $45 billion loan, Citibank and Wells Fargo will be the only multi-billion dollar debts owed to the federal government under the Troubled Asset Relief Program.
Bank of America (BAC, Fortune 500) said late Wednesday it will raise $20 billion in new capital to repay its Troubled Asset Relief Program obligations. After BofA extinguishes its $45 billion loan, just two of last fall’s initial multibillion-dollar Treasury capital infusions into big banks will remain outstanding.
Wells Fargo, which is considered to be much healthier than Citibank, appears to be eager to repay its TARP obligations, but public statements from the company aside, the company has smaller capital reserves than some of its rivals.
The company has promised to repay its borrowings in a means that is “shareholder-friendly”. In other words, Wells Fargo doesn’t plan to dilute its existing shareholders investments by issuing new stock.
Bernstein Research analyst John McDonald said in a note on Wednesday that, “We believe BofA aggressively campaigned to repay TARP, due to the significant impact it was having on its ability to recruit and retain employees, as well as a potential overhang on the stock.” McDonald continued, “We think the calculus of TARP repayment is a different risk/reward” for Wells.
Like Bank of America, Wells Fargo would likely need to renegotiate the terms of its loan under any TARP repayment plan with the US Treasury. Naturally, the treasury wants its money back, but it also wants to make sure that banks have enough capital in the event that the recovery goes slower than expected.
