And Then There Were None: Wells Fargo to Repay TARP
Dec 15th 2009 5:00AM
Updated Dec 16th 2009 11:56AM
Wells Fargo (WFC) plans to follow Citigroup's (C) lead and repay the money it owes to the TARP fund. Wells Fargo, the last large bank that still holds government money, said it had received approval to repay the $25 billion it owes. Part of payment will come from a stock offering of $10.4 billion. The bank said the move would save it $1.25 billion in annual preferred stock payments.
After the news of the repayments from the two huge banks, Treasury Secretary Geithner said in a statement, "With the recent announcements on repayments, we are now on track to reduce TARP bank investments by more than 75%, while earning a healthy profit on that commitment."
The Treasury Department added, "Today's announcements mean that more than $185 billion of the $245 that TARP invested in banks is now slated to be returned to taxpayers -- with $90 billion scheduled to come back just in this month alone."
As the economy lurches into 2010, it's possible that the government may be taking the money back too soon. Taxpayers are certainly going to be happy that their money is no longer at risk sitting on the balance sheets of once-troubled banks. But once-troubled banks could get in trouble again.
The repayment of TARP funds is based on the theory that the worst of the credit crisis is over. That is not entirely clear: The International Monetary Fund remains concerned that multinational banks still face write downs in toxic assets. Most large American financial firms hold commercial mortgages that are in trouble. There's no guarantee that default rates among credit card holders won't continue to rise.
The worst scenario the federal government could face is that it takes back capital from large American money-center banks and then has to reinvest some of it if the firms face balance-sheet trouble again. It wouldn't be the first time in history that a credit crisis or recession came in two dips.
The Treasury Department may look back at the end of 2010 and wish it hadn't taken back all of the TARP money so quickly.
Douglas A. McIntyre is an editor at 24/7 Wall St.