Nine Banks to Repay TARP Money

At Least $50 Billion in U.S. Bailout Funds Is Expected to Be Recovered With Unexpected Speed By DEBORAH SOLOMON The Treasury Department expects an initial payback from the nation's largest banks of at least $50 billion in bailout funds, according to people familiar with the matter, double the amount the government initially expected to recoup. In addition, Treasury officials are expected to announce Tuesday that up to nine of the biggest banks have approval to repay their Troubled Asset Relief Program funds, these people said. The $50 billion of repayments is the latest sign of improvement in the banking sector. At the same time, many of the banks repaying their TARP funds are expected to continue using other government assistance programs, such as the Federal Reserve's financing facilities. Many banks needed the government's help last October, when the financial system was teetering on the edge of collapse. As market conditions have begun to stabilize, banks have been able to raise tens of billions of dollars from private sources and have begun looking to escape from under the government's thumb. While some big banks will be allowed to repay, the Treasury doesn't believe things have improved enough that the money won't be needed elsewhere. Treasury Secretary Timothy Geithner has said he plans to reuse returned TARP funds to assist other firms, including smaller banks, including those that have already received an initial TARP infusion. The list of large financial firms expected to get the green light on repayment includes American Express Co., Bank of New York Mellon Corp., Capital One Financial Corp., Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. On Monday, several big banks either declined to comment on the Treasury Department's expected announcement or said they hadn't been notified of the government's approval to repay their TARP funds. A handful of community banks are also expected to soon repay their TARP funds. Already, about 22 banks have taken steps to repay TARP, returning about $1.8 billion to the government. The timing of the paybacks will be up to the individual banks and the Treasury, which must determine how to deal with warrants the government received as part of its initial investment. The warrants gave the government the right to purchase common stock at a set price for a period of 10 years. The Treasury is discussing how to value the warrants and could ultimately choose to sell them into the private market. More Opinion: Making Failure an Option While the government hadn't intended for firms to pay back their TARP money so quickly, legislation passed by Congress earlier this year required they be allowed to do so. Before getting the green light, banks had to prove they could raise money in the private sector without backing from a Federal Deposit Insurance Corp. program. The Federal Reserve also had to agree that banks could continue to lend without TARP money and retain adequate capital levels. Banks have been able to raise money in part because of government-performed stress tests that assessed the capital cushions at the nation's 19 largest banks. The tests showed banks' exposure to various assets, such as real estate, and how they would fare if economic conditions worsened. Nine of those banks were judged not to need to bolster their capital, while another 10 were told to improve their capital position. Many banks have been eager to repay TARP in part to show investors they are healthy enough not to need government assistance. But many are uncomfortable with the restrictions that come with the government's investment, including on pay, dividends and stock buybacks. Separately, the Federal Reserve Monday gave an initial nod to the 10 banks that were ordered to raise more capital as a result of the stress tests. The Fed said the plans submitted by firms including Citigroup Inc., Bank of America Corp., Morgan Stanley and others were adequate and showed the firms are on course to raise the funds they need to survive and keep lending if the economy keeps worsening. The 10 banking organizations "have all submitted capital plans that, if implemented, would provide sufficient capital to meet the required buffer under the assessment's more-adverse scenario," the Fed said. —Dan Fitzpatrick, Jon Hilsenrath and Kate Kelly contributed to this article. Write to Deborah Solomon at deborah.solomon@wsj.com