One year after a massive bailout of the US financial industry, banking giants Citigroup and Wells Fargo said they would repay a combined $45 billion worth of state aid, becoming the last leading US lenders to settle their debt with taxpayers.
AFP - Citigroup and Wells Fargo struck deals Monday to repay a total of 45 billion dollars in state aid, winding down a year-long US government effort to save the banking sector from wholesale collapse.
The firms were the last banking giants to repay loans from state bailouts that totaled over 300 billion dollars across the sector under the Troubled Asset Relief Program (TARP).
Facing a global economic meltdown not seen since the Great Depression of the 1930s, the US Treasury at the end of 2008 stepped in with the series of bailouts to stabilize the financial system and keep credit flowing.
Citigroup unveiled their plans to repay 20 billion dollars in state aid and outlined plans to emerge from their massive bailout, while Wells Fargo said it would return the 25-billion-dollar TARP loan.
"We are pleased to be able to repay the US government's trust preferred securities and to terminate the loss-sharing agreement," said Citigroup chief executive Vikram Pandit.
"We owe the American taxpayers a debt of gratitude and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need."
The government injected a total of 45 billion dollars in the firm, once the world's biggest banking group.
Wells Fargo CEO John Stumpf acknowledged that TARP stabilized the US financial system "when confidence in financial markets around the world was being tested unlike any other period in our history."
Both companies said their shareholders would be taking losses in the deals, with Citi saying the repayment would result in a loss of some eight billion dollars, but would save the firm 1.7 billion dollars a year in interest.
Wells Fargo's repurchase of TARP preferred stock will likely reduce common shareholders' income available by two billion dollars in the forth quarter, because "the book value of the preferred stock is less than the amount paid," the bank said.
The announcements came as President Barack Obama warned senior bank executives visiting the White House Monday to prepare for a fight unless they drop objections to plans for the most sweeping regulatory reform.
"America's banks received extraordinary assistance from American taxpayers to rebuild their industry and now that they're back on their feet we expect an extraordinary commitment from them to help rebuild our economy," he said.
In an interview with CBS television aired Sunday, Obama lashed out at Wall Street bankers saying he did not run for office "to be helping out a bunch of fat cat bankers."
The Treasury said after Citigroup's announcement that it was "pleased" by the return of funds.
The department said in a statement that it "has repeatedly stated that the United States never intended to be a long-term shareholder in private companies.
"As banks replace Treasury investments with private capital, confidence in the financial system increases, government's unprecedented involvement in the private sector diminishes, and taxpayers are made whole."
Bank of America said last week it had completed repayment of 45 billion dollars to the Treasury after raising new capital.
The largest US bank by assets had received 25 billion dollars under the initial program to shore up capital in the banking system under a plan engineered by the administration of president George W. Bush.
It also received an additional 20 billion dollars to help absorb the troubled brokerage giant Merrill Lynch -- a deal that raised hackles among lawmakers and the public because of massive losses and hefty bonuses that were not initially disclosed at the Wall Street firm.
Many banks repaid the government earlier this year, escaping tougher scrutiny from regulators that could include limits on executive pay and bonuses at bailed-out firms.
Most of the major financial institutions began repaying the government after the "stress tests" that indicated how much capital they would have to raise in private markets.
Date created : 2009-12-15