Wells Fargo TARP Payback
Wells Fargo has decided to cash in some stock and repay its TARP money. It’s the last major bank to do so. Liz Moyer for Forbes:
For months, Wells Fargo insisted it would repay its $25 billion worth of federal bailout funding in a way that wouldn’t dent existing shareholders. Its priorities seem to have changed. The San Francisco based-bank said late Monday it would sell $10.4 billion in common shares to refund the money given it under the Troubled Asset Relief Program. The dilution to existing shareholders, the largest of which is Warren Buffett’s Berkshire Hathaway, seems to be less troublesome than being the only major bank left under the government’s thumb.
Monday morning, Citigroup announced plans to sell $20 billion of stock and debt to repay some of the $45 billion it took under TARP, enough to get it out from under the strictest of government controls.Earlier this month, Bank of America started the process of repaying its $45 billion in TARP funds. The exit of Wells Fargo would reduce the roster of TARP wards mostly to large regional banks, including Pittsburgh-based PNC Financial Services Group and Atlanta-based SunTrust Banks.
For the big Wall Street banks, the urgency to get out of TARP was palpable. Regulators have clamped down on executive compensation at companies taking government assistance, a threat to the traditionally huge bonus payments that go to star traders and bankers. Goldman Sachs, Morgan Stanley and JPMorgan Chase exited the TARP much earlier this year.
For regional banks without a meaningful trading or investment banking business, paying back TARP to get out of pay restrictions is less urgent. Wells Fargo, which is known mostly as a retail banking giant, last year acquired a sizable capital markets business when it bought Wachovia. Last fall when the TARP was doled out, Wells executives protested that they neither needed nor wanted the money.
One gathers neither the government nor Wells is happy with the move. The company is undercapitalized and this is a big hit. But its leaders clearly believe this is better than submitting to the whims of some federal tsar with no understanding of the business. At the same time, while one would think the government would be pleased to have its loan paid back much sooner than expected, this move will deprive them of the leverage to set arbitrary compensation levels in a politically popular move.