Saturday, November 14, 2009

banks pay bakc TARP money

It may be tempting to conclude that the G20 push for higher capital prompted the spate of rights issues as banks acted to comply. But things are not as simple as that. Indeed, there is a sense in which the tattered titans of the world’s financial sector, having smartened themselves up again, are raising the minimum possible to repay bail-out money and relying on future earnings to do the rest.

“The G20 timetable for increasing capital only by the end of 2012 means that they can rely on three years of retained profits,” says Cyril Court, a capital markets banker at HSBC, which ran BNP’s rights issue. “G20 was essential in determining the [smaller] quantum of capital that banks would have to raise.” In other words, the vast capital raisings that some banks had feared they would have to launch have been unnecessary. Those that have taken place have been relatively modest, and largely restricted to banks that have government bail-out money to repay...

Some deals have come from banks with no government involvement – notably HSBC’s record rights issue in the spring and Nomura’s $5.6bn offering last month. The first repayments of government money came in the US in June when 10 banks, including Goldman Sachs, JPMorgan Chase and Morgan Stanley, repaid a combined $68bn received eight months earlier under the so-called troubled asset relief programme. As a prerequisite for that deal, Washington forced them to raise fresh equity and bond finance...

The big question now is whether the two sick men of the US banking system – Citi and BofA – will be allowed to repay the $90bn in Tarp money they have and, if so, how much capital they would be asked to raise.

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