Dead Bank Walking

The Treasury just gave ten big banks the okay to repay their Tarp Funds.  The gang of ten includes J.P Morgan, Goldman Sachs, Morgan Stanley, American Express, Bank of New York Mellon, US Bancorp, Capital One Financial Corp, and Northern Trust.  This basically gives positive identification to our zombie banks.  The three most worrisome are Citibank, Wells Fargo, and Bank of America Corp essentially creating a two-tier banking system.   The second tier banks had to give the Treasury their plans to raise capital, while the other banks turn back their funds.

As part of the bank bailout program, known as the Capital Purchase Program, the 10 institutions eligible to repay TARP have the right to repurchase warrants the Treasury holds at fair market value.

The 10 financial institutions already paid $1.8 billion in dividend payments to the Treasury over the last seven months, bringing the total of all dividend payments to $4.5 billion.

Proceeds from the repayments go to the Treasury’s general account, which is used to reduce Treasury’s borrowing and reduce the national debt. The funds could also be used to provide further capital to troubled financial institutions as part of the TARP program.

Other smaller banks have also returned bank bailout funds, bringing the total in returns to $70 billion.

As part of the program, J.P. Morgan is eligible to return $25 billion in TARP funds, Goldman Sachs, $10 billion, and Morgan Stanley, $10 billion.

BB& T plans to repay $3.1 billion in TARP funds it received, according to a statement from the institution Tuesday. U.S. Bancorp announced plans to buy out $6.6 billion in TARP capital, the bank reported Tuesday.

Other eligible institutions include American Express, $3.4 billion, Bank of New York Mellon, $3 billion, and State Street Bank, $2 billion.

The Zombie three have began some encouraging steps like removing a few board directors.  The FDIC (Sheila Bair) is encouraging a shake up of top management. Citi plans to exchange some preferred securities for common stock. But will these steps be enough? Can we really trust so much of our economy’s lending and spending power to zombies?

Read the rest of this entry »