10 large US banks to repay $68B in TARP funds

A key government effort to ease the credit crisis reached a milestone Wednesday as 10 large banks said they had repaid a total of $68 billion in bailout funds.

Treasury said last week that the banks could begin repaying money they received under the $700 billion financial system bailout known as the Troubled Asset Relief Program, or TARP. The government created the program in October as its flagship effort to address the global credit crisis and teetering financial markets.

Meanwhile, officials hustled to prepare an announcement about the pricing of stock warrants Treasury holds -- a final barrier to the banks' ending their ties to the bailout program. The warrants allow Treasury to buy the banks' stock at a fixed price at some future date. The banks now want to buy back those warrants

The flurry of activity around TARP followed months of criticism from opponents of government intervention in the financial industry. It showed that some of the biggest TARP investments are winding down sooner than many had feared.

More than $70 billion has been returned to the fund. That includes Wednesday's redemptions and about $2 billion in earlier repayments from smaller banks.

But until the banks can buy back the stock warrants Treasury holds, they remain entangled in a program that has subjected them to limits on executive pay and other restrictions. The banks have chafed against TARP from early on, fearing government-imposed rules could hurt their profits and prevent them from hiring or keeping top talent.

The warrants are hard to price because their values will fluctuate along with the banks' stock prices. Treasury wanted more money to unwind the contracts than the banks were willing to pay.

Uncertainty surrounding the warrant sales raises questions about whether Treasury "is getting the best possible price for taxpayers," the Government Accountability Office charged in a report released Wednesday

The GAO also urged Treasury to create consistent rules for evaluating bank requests to buy their way out of TARP.

Wednesday marked the first repayment opportunity for the 10 large banks whose exit applications Treasury approved last week. Throughout the day, the banks announced that they had finished repaying the government money

The list included some of the largest and best-known banks in the country. They were: JPMorgan Chase & Co., Morgan Stanley, Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., American Express Co., BB&T Corp., Bank of New York Mellon Corp., Northern Trust Corp. and State Street Corp.

To begin the process of leaving TARP, the banks had to clear a series of hurdles designed to make sure they would remain viable despite the financial crisis and the recession

All but Northern Trust underwent government "stress tests" to ensure they had an extra capital buffer in case the recession worsened. The 10 also were required to raise equity from investors and raise debt without a government guarantee.

Despite their relative strength, the banks still rely on government subsidies, including guarantees on debt they already issued and discounted credit lines from the Federal Reserve

The rapid repayments are not necessarily a sign that TARP itself will be scaled back. Treasury has said the money would be returned to the $700 billion bailout fund. It could be recycled in loans to other institutions the government hopes will lend money to people and businesses, supporting an economic recovery.

But an announcement about warrant pricing is expected by Friday, according to two industry sources who would speak only anonymously because the matter was not yet public.

That clarification and Wednesday's repayments provide a clearer way forward for banks wishing to end their involvement with the government's financial stabilization plans.

That clarification and Wednesday's repayments provide a clearer way forward for banks wishing to end their involvement with the government's financial stabilization plans.

That clarification and Wednesday's repayments provide a clearer way forward for banks wishing to end their involvement with the government's financial stabilization plans.

In addition, taxpayers will receive billions in exchange for the warrants, once Treasury and the banks agree on how to price them.

7 Stocks You Need to Know for Monday

.S. stocks recovered most of Wednesday's losses, with financial stocks leading the advance. Commodity prices continued their rapid descent and the dollar rose.

The Dow gained +261.66 , the Nasdaq Compsite +48.15, and the S&P 500 +31.09. The markets are closed on Friday in observance of the Easter holiday.

Nike (NYSE:NKE - News) jumped 8.4% after beating earnings estimates. NKE's Short Term PowerRating is 5.

Carnival Corp. (NYSE:CCL - News) also gained 8.4% after reporting earnings above expectations. CCL's Short Term PowerRating is 4.

Shares of CIT Group (NYSE:CIT - News) plunged as much as 42%, before closing down 17%, after Fitch Ratings said the company may need to use a $7.3 billion backup credit line. CIT's Short Term PowerRating is 6.

Bain Capital and its Chinese partner dropped their $2.2 billion bid for 3Com (NasdaqGS:COMS - News) after failing to reach an agreement that would satisfy the U.S. government's national security concerns. COMS' Short Term PowerRating is 6.

After the close, Palm (NasdaqGS:PALM - News) missed estimates by -$0.02, reporting a loss of -$0.16 per share. PALM's Short Term PowerRating is 5.

Before the market open on Monday, Walgreen (NYSE:WAG - News) is expected to report earnings of $0.67. WAG's Short Term PowerRating is 4.

Do you think Goldman Sachs (NYSE:GS - News) will close up or down on Tuesday? GS' Short Term PowerRating is 3. Play TradingMarkets Up or Down Daily Stock Contest for the chance to win $1000 every month by predicting the direction of a stock.

7 Stocks You Need to Know for Wednesday

Stocks surged on Tuesday, after strong gains in Europe and Asia, with financial stocks leading the advance. Before the market open, Goldman Sachs and Lehman Brothers reported stronger than expected earnings. Later in the day, the Federal Reserve slashed its benchmark rate by 75bp to 2.25% in an attempt to ease the credit crisis and help the slowing U.S. economy.

The Dow gained +420.41, while the Nasdaq Composite lost +91.25, and the S&P 500 +54.14.

Here are 7 stocks to watch...

Goldman Sachs (NYSE:GS - News) reported a 53% decline in net profit, after writedowns and lower fixed income revenues. However, first quarter earnings of $3.23 per share beat estimates by $0.65. GS' Short Term PowerRating is 3.

Lehman Brothers (NYSE:LEH - News) reported first quarter earnings of $0.81, a 57% drop, but still beat estimates by $0.09. After the sudden collapse of Bear Stearns, speculation that LEH could be next to fall has been rampant, but today's numbers eased concern and led to a huge rally. LEH's Short Term PowerRating is 4.

Bloomberg reported a Wachovia analysts' note to investors that stated Merrill Lynch (NYSE:MER - News) "is the riskiest" of the remaining U.S. investment banks. MER's 4.

Yahoo! (NasdaqGS:YHOO - News) laid out its vision for the future, stating that it expects revenue to double over the next three years. The company also reaffirmed its Q1 and FY08 outlook. YHOO's Short Term PowerRating is 6.

After the close, Adobe Systems (NasdaqGS:ADBE - News) reported earnings of $0.48, beating estimates by $0.03. ADBE's Short Term PowerRating is 5.

Visa (NYSE:V - News) is set to make its debut as a publicly traded company tomorrow. The $17 billion IPO will be the biggest stock sale in U.S. history, second only to the $22 billion offering of Industrial & Commercial Bank of China.

Morgan Stanley (NYSE:MS - News) is scheduled to report before the market open on Wednesday, with analysts looking for $1.03 per share. MS' Short Term PowerRating is 4.

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Investment Banks

Shares of investment banks fell in early Thursday trading after Lehman Brothers analyst Roger Freeman said banks are likely to face widening losses on asset write-downs.

Bear Stearns Cos. shares fell the furthest, declining $7.30, or 12.1 percent, to $54.28, after earlier hitting $52.43, their lowest point since the fall of 2002.

Freeman said any gains Bear Stearns would have received from wider spreads would be offset by write-downs on alt-A mortgage assets. Alt-A mortgages are loans given to customers with minor credit problems or who do not have the documentation to get a traditional, prime loan.

Freeman estimates Bear Stearns will earn 90 cents per share for the quarter ending Feb. 29.

Bear Stearns book value per share was $84.85 at the end of the quarter, Freeman estimated.

Bear Stearns is likely to lose $50 million in its merchant banking division and reduce the value of its alt-A exposure by about 8 percent during the quarter, Freeman wrote in a research note.

Among other investment banks with quarters ending Feb. 29, Freeman estimated Goldman Sachs Group Inc. earnings will likely be hurt by high losses in its investment portfolio. Freeman lowered his first-quarter earnings estimate for Goldman Sachs to $1.95 per share from $2.10 per share.
Shares of Goldman Sachs fell $3
.50, or 2.2 percent, to $159.51.

Morgan Stanley will also be negatively affected by asset write-downs and investment losses, which could be partially offset by some gains in structured debt, Freeman said.
Shares of Morgan Stanley fell 82 cents, or 2 percent, to $40.19.

McDonald's February Sales

McDonald's Corp. said Monday that February sales at restaurants open more than a year jumped a better-than-expected 11.7 percent, boosted by growth in Europe, the weak dollar and the benefit of an extra selling day this year.

Two straight months of solid results to start the year have reassured investors worried about the impact of the economic slowdown on the world's largest fast-food chain, among other restaurant companies.

McDonald's shares increased $1.11, or 2.1 percent, to $53.38 in morning trading.

The leap year boosted same-store sales by about 4 percent last month, the Oak Brook-based company said.

Same-store sales in the U.S. rose 8.3 percent during the month ending Feb. 29, led by breakfast and coffee offerings. European same-store sales grew by an impressive 15.4 percent on strong results in the U.K., France, Germany and Russia.

Same-store sales in the Asia Pacific region, Middle East and Africa rose 10.9 percent for the month, mostly on strength in Australia, China and Japan.

Systemwide sales, which include restaurants owned by franchisees and affiliates operating under joint-venture agreements rose 13.2 percent in February.

Goldman Sachs analyst Steven Kron said McDonald's is well-positioned to navigate through economic challenges because of its tiered menu platform which offers a mix of value and more expensive new products.

Paul Westra of Cowen and Co. said he is hearing positive feedback from the rollout of McDonald's specialty coffees, now available in more than 1,000 U.S. restaurants en route to being in all of them by mid-2009.

"We strongly believe that February's solid results were positively impacted by the rollout of its two Southern-style chicken sandwiches (breakfast and lunch sandwiches) ahead of a likely spring 2008 media launch. This fact bodes well" for a strong second quarter, he said in a note to investors.