Tuesday, December 15, 2009

Citi, Wells Fargo to Repay TARP Bailout Funds

The Wall Street Reports that "Citigroup ($20 billion) and Wells Fargo ($25 billion) are the last major lenders to return their TARP money. With the deals announced Monday by Citigroup and Wells Fargo, banks will have repaid $161 billion of the $245 billion in financial capital that was pumped into about 700 institutions as part of the Troubled Asset Relief Program (TARP). J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley paid the government back in June 2009. Last week, Bank of America paid its $45 billion to the Treasury."

What I find very interesting is that all of these major banks that have repaid TARP funds have done so by diluting their shareholders big time. Yet on a fully diluted basis, their stocks are trading at or near where they were before the financial crisis started, with the exception of Citigroup. That is the reason why common stockholders, even though their ownership interest has been diluted significantly, are not crying bloody murder.

Now that everything has been repaid by the big boys. What is the encore? First, these financial institutions will be able to pay those lucrative $bonuses unimpeded. Second, look to see if the insiders (officers and directors) are selling their stock in a larger percentage than normal, since the stocks are back to near pre-panic levels. Third, FASB changes are forcing all off-balance sheet items back on the balance sheet, which will be reflected in next quarter's 2010 earnings (good for transparency but bad for stock prices because of the unexpected -- reason why these items were kept off-balance sheet!)

I don't know about you, but I am not going to be purchasing any bank stock anytime soon! That time has come and gone IMHO.

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