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.

Home Sales in February

Sales of existing homes increased unexpectedly in February after six months of decline, but private economists said it was too soon to say the prolonged slide in housing is coming to an end.

The National Association of Realtors said sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It marked the first sales increase since last July, but even with the gain sales were still 23.8 percent below where they were a year ago.

Prices continued to slide. The median sales price for single-family homes and condominiums dropped to $195,900, a fall of 8.2 percent from a year ago, the biggest slide in the current housing slump. The median price for just single-family homes was down 8.7 percent from a year ago, the biggest decline in four decades.

Wall Street, which had been expecting another decline in home sales, was encouraged by the February increase as well as improved terms for Bear Stearns stockholders in the sale of that company to JPMorgan Chase & Co. The Dow Jones industrial average rose 187.32 points Monday to close at 12,548.64.

Economists, however, said they still believed any sustained housing rebound was many months away.

"The hemorrhaging has stopped but the recovery will be long, slow and painful," said Bernard Baumohl, managing director of the Economic Outlook Group. "It's unlikely that we will see any sustained jump in home purchases, must less higher prices, until mid 2009 at the earliest."

Brian Bethune, an economist at Global Insight, said, "A quick bounce-back in the housing markets is simply not in the cards."

White House press secretary Dana Perino said the increase in sales and a decline in the inventory of unsold homes was encouraging but "we can't put a lot of stock in just one report."

Lawrence Yun, chief economist for the Realtors, said that some formerly hot markets in California and Florida were seeing significant price declines now as sellers are cutting prices to attract buyers.

"We are not expecting a notable gain in existing-home sales until the second half of this year," he said.

He said sales should be helped in coming months by recent moves to boost the loan limits on mortgages that can be insured by the Federal Housing Administration and purchased by Fannie Mae and Freddie Mac.

By region of the country, sales surged by 11.3 percent in the Northeast and were up 2.5 percent in the Midwest and 2.1 percent in the South. The only region of the country to see a sales decline was the West, where sales dropped by 1.1 percent.

The inventory of unsold homes dipped to 4.03 million units in February. That meant it would take 9.6 months to exhaust the supply of homes for sale at the February sales pace. That was down from January's level of 10.2 months but still about double what the months' supply had been during the peak of the housing boom.

Sales of existing homes fell by 12.8 percent in 2007, the biggest decline in 25 years, following an 8.5 percent drop in 2006. After a five-year boom, the steep downturn in housing over the past two years has been made worse by a severe credit crunch as financial institutions tightened their lending standards in reaction to multibillion-dollar losses on mortgages that have gone into default.

The steep slump in housing has raised concerns about a possible recession. Democrats are pushing for greater efforts to stem a tidal wave of mortgage foreclosures to keep more unsold homes from being dumped on an already glutted market.

Sen. Hillary Clinton, campaigning for the Democratic presidential nomination in Pennsylvania on Monday, called on President Bush to appoint an emergency working group on foreclosures to recommend new ways to confront the housing crisis.

"Over the past week, we've seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks," Clinton said in a campaign speech. "It's now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession."

Wall St sinks as Bear shakes faith in banking

Stocks fell on Monday after JPMorgan Chase (NYSE:JPM - News) bought Bear Stearns (NYSE:BSC - News) at a fire sale price and the Federal Reserve provided emergency cash to Wall Street as the global credit crisis worsened.

But stocks trimmed losses as shares of JPMorgan led advancers, while the Fed's move to cut its discount rate to 3.25 percent and expand lending to a wider range of big financial firms -- the first such move since the Great Depression -- helped Wall Street ease a bit off early lows.

Futures have been pricing in a 100-basis-point cut from the Fed when it meets tomorrow.

JPMorgan is buying Bear Stearns for $236 million, or $2 per share -- one-fifteenth of the price at Friday's close. Shares of Bear, which until recently had ranked as the fifth-largest U.S. investment bank, reached a high of $172.61 last year. Bear's stock plummeted 87.3 percent to $3.91 at midday on Monday.

The financial sector tumbled, as Lehman Brothers (NYSE:LEH - News) sank 23.9 to $29.86 and Citigroup dropped 7.3 percent to $18.35. The Standard & Poor's financial index (^GSPF - News) was down 3.6 percent.

JPMorgan, the top gainer in both the blue-chip Dow average and the S&P 500, climbed 8.3 percent to $39.58, preventing an uglier morning on Wall Street.

"The Fed took very aggressive action over the course of the weekend, and so that's having an impact," said Michael Darda, chief economist at MKM Partners LLC, in Greenwich, Connecticut.

"The problem is that action will have an inflationary price tag. And you can see that in all of the commodity and currency indicators."

The Dow Jones industrial average (DJI:^DJI - News) dropped 114.39 points, or 0.96 percent, to 11,836.70. The Standard & Poor's 500 Index (^SPX - News) shed 23.44 points, or 1.82 percent, to 1,264.70. The Nasdaq Composite Index (Nasdaq:^IXIC - News) tumbled 44.78 points, or 2.02 percent, to 2,167.71.

In a fresh sign of faltering confidence in the U.S. economy and financial system, the dollar sank to its weakest against the yen since 1995 and slumped against the euro.

The "fire sale" of Bear has put U.S. banks at risk as it will result in valuation adjustments that could result in a drop of stock prices by as much as 50 percent, Oppenheimer & Co analyst Meredith Whitney wrote.

Elsewhere in the financial sector, mortgage insurer PMI Group Inc (NYSE:PMI - News) reported its biggest-ever quarterly loss, mainly due to losses on its investment in bond insurer FGIC Corp. It also slashed its dividend by more than 70 percent.

Shares of PMI dropped 11.3 percent to $5.05, after hitting a lifetime low of $4.82 earlier in the session.

The New York Federal Reserve Bank reported an unexpectedly steep drop in its manufacturing survey and a rise in prices paid. It was the worst reading of business conditions in the state of New York since the index was launched in July 2001.

Dow, S&P 500 drop,Nasdaq up

The Dow and the S&P 500 dropped on Friday as concerns about the outlook of bond insurers weighed on financial shares, but bargain hunting in the technology sector pulled the Nasdaq into positive territory.

Shares of JPMorgan Chase & Co (NYSE:JPM - News) dropped 1.7 percent, and led the Dow's losers, while credit card and travel services company American Express Co (NYSE:AXP - News) slid 2 percent.

The drag from financial shares was driven in part by investor unease about the outlook for bond insurers after Moody's Investors Services cut its "AAA" ratings for bond insurer XL Capital Assurance, a unit of Security Capital Assurance (NYSE:SCA - News).
Comments from a Federal Reserve official saying a recession might not be avoidable were another headwind for stocks.

The Dow Jones industrial average (DJI:^DJI - News) was down 67.06 points, or 0.55 percent, at 12,179.94. The Standard & Poor's 500 Index (^SPX - News) was down 6.00 points, or 0.45 percent, at 1,330.91. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 3.59 points, or 0.16 percent, at 2,296.62.

Investors fear that downgrades of bond insurers could further harm the banking sector and stunt the global economy as financial institutions take a hit from subsequent write-downs of their assets.

JPMorgan shares fell to $44.23 on the New York Stock Exchange, while shares of American Express dropped to $45.55.

Shares of MBIA Inc (NYSE:MBI - News), the world's largest bond insurer, slipped by 0.4 percent to $14.12.

The company on Thursday sold $1 billion of shares to raise capital it hopes will help it avoid a rating downgrade. The sale was at a discount to MBIA's closing price.

On the Nasdaq, Apple Inc (NasdaqGS:AAPL - News) provided the biggest lift to the index, with a gain of 1.7 percent to $123.24. Tech stocks recently have taken a beating as investors worried about business spending, making some stocks attractively priced.
as attractive valuations lured investors to seek bargains.

San Francisco Federal Reserve Bank President Janet Yellen, speaking in Honolulu, indicated on Thursday a willingness to cut U.S. interest rates further, but she said she was not confident a recession can be avoided this year.

Latest Updates

11:30 am : In the past half-hour, the Dow climbs to fresh session highs and the S&P trades near its intraday high. The Nasdaq is well off its lows, but has been unable to reach its opening highs as it trades slightly above the unchanged mark.

The International Monetary Fund (IMF) cut its forecast for world growth this year, citing continued stress in global credit markets, according to Reuters. The IMF also warned that economic activity could slow further. It now expects the global economy to grow 4.1%, compared to its earlier forecast of 4.4%.DJ30 +77.72 NASDAQ +3.56 SP500 +7.37 NASDAQ Dec/Adv/Vol 1337/1422/725 mln NYSE Dec/Adv/Vol 1115/1870/477 mln

11:00 am : The major indices are trading in mixed fashion. The Dow and S&P
are holding slight gains, while the Nasdaq is trading with a slight loss. Seven of the ten sectors are higher, led by a 2.6% surge in telecom. Consumer discretionary is the main laggard (-0.7%) as retailers shed 1%.

The market rumor that JPMorgan Chase (JPM 45.95, +0.83) was facing a big derivative loss is not true, according to Reuters, citing sources. JPMorgan has been relatively unscathed by the subprime turmoil that has mired other Wall Street banks.DJ30 +47.13 NASDAQ -3.88 SP500 +4.71 NASDAQ Dec/Adv/Vol 1363/1332/579 mln NYSE Dec/Adv/Vol 1167/1759/366 mln

10:30 am : The stock market is back in the green as it rises in conjunction with financials (+0.7%). JPMorgan (JPM 45.88, +0.31) declined sharply during the recent retreat on a headline that stated there is a rumor the company may be facing a large trading loss. A CNBC commentator has said the rumor is most likely not true, as the stock recovers.

After a rough start, 3M (MMM 77.84, +0.40) is modestly outperforming the broader market. The company reported fourth quarter earnings of $1.19 per share, topping estimates by two cents. The company also reiterated its 2008 guidance. The stock was lower at the start of trading, but has rebounded in the green after traders liked what the company said during its conference call. DJ30 +54.22 NASDAQ -1.21 SP500 +5.23 NASDAQ Dec/Adv/Vol 1397/1195/419 mln NYSE Dec/Adv/Vol 1329/1550/258 mln

10:05 am : Stocks give up their early gains, led by a dip in tech (-0.8%) and financials (-0.2%).
Just hitting the wires, the Conference Board said January consumer confidence was 87.9, down from December's revised reading of 90.6. Economists expected a reading of 87.0. The response immediately after the release was negative, sending the major indices to their session lows.

The weakness in tech is weighing on the Nasdaq, which is now trading with a modest loss. The S&P and Dow are trading with a slight loss.DJ30 -15.52 NASDAQ -16.08 SP500 -2.25 NASDAQ Dec/Adv/Vol 857/1509/134 mln

09:45 am : The stock market opens modestly higher, buoyed by a better than expected durable orders report.

December durable orders rose 5.2%, larger than the expected 1.6% rise. Excluding transportation, orders still rose a healthy 2.6%. This strong level of orders in December does not support the assertion that the economy is in a recession.
Earnings reports have been mostly better than expected, although some companies disappointed with their outlooks.

The consumer confidence reading will be released at the top of the hour.DJ30 +47.31 NASDAQ +7.90 SP500 +6.73

09:13 am : S&P futures vs fair value: +9.2. Nasdaq futures vs fair value: +11.8.

08:59 am : S&P futures vs fair value: +8.7. Nasdaq futures vs fair value: +12.0. Futures continue to point to a higher start. The FOMC begins its two day meeting today, and is set to issue its statement on Wednesday at 14:15 ET. Fed funds futures indicate a 76% chance of a 50 basis point cut, with the rest of the bets on a 25 basis point cut.

08:30 am : S&P futures vs fair value: +9.9. Nasdaq futures vs fair value: +9.5. Stock futures extended their gains, and then climb higher on a better than expected economic release. December Durable orders rose 5.2%, compared November’s revised reading of 0.5%. Economists expected a rise of 1.6%. Countrywide (CFC) reported a fourth quarter loss of $0.79 per share, $0.49 worse than the consensus estimate. The company issued a dividend of $0.15 on its common shares. It will not be holding a conference call to discuss its results due to its pending merger with Bank of America.

08:01 am : S&P futures vs fair value: +3.3. Nasdaq futures vs fair value: flat. Futures point to a flat to slightly higher open. Earnings reports have been mostly better than expected. 3M (MMM) topped estimates by two cents and reaffirmed its FY08 earnings guidance. Eli Lilly (LLY) and EMC (EMC) beat their estimates and provided reassuring FY08 guidance. American Express (AXP) met, but continues to be cautious in its 2008 outlook. VMware (VMW) beat expectations but is getting clipped in pre-market trading after guiding revenues slightly below the consensus estimate.

06:19 am : S&P futures vs fair value: +5.9. Nasdaq futures vs fair value: +3.3.

06:16 am : FTSE...5883.60...+94.70...+1.6%. DAX...6911.98...+93.13...+1.4%.

06:16 am : Nikkei...13478.86...+390.95...+3.0%. Hang Seng...24291.80...+238.19...+1.0%.