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.
Wednesday, June 17, 2009
10 large US banks to repay $68B in TARP funds
Sunday, October 5, 2008
Delta Air
The Atlanta-based carrier said it flew 9.71 billion revenue passenger miles last month, a 0.8 percent decline from 9.79 billion a year earlier.
Available seat miles, or capacity, fell 3.7 percent to 12.14 billion from 12.61 billion a year earlier.
Load factor, or occupancy, rose 2.4 percentage points to 80 percent from 77.6 percent.
For the first nine months of the year, Delta recorded systemwide traffic of 94.46 billion revenue passenger miles, compared to 92.83 billion a year earlier. Available seat miles rose to 115.2 billion from 114.35 billion. Year-to-date load factor was 82 percent, compared with 81.2 percent a year earlier.
Shares of Delta Air Lines slipped 36 cents, or 4.6 percent, to $7.55 in afternoon trading
Saturday, February 16, 2008
A Down Market Has Its Upsides for Young People
By Anya Kamenetz
Sometimes what seems like bad news can be turned into good.
All the recent talk about the faltering economy certainly seems to fall into the bad-news category. Housing prices had the biggest decline ever, the U.S. and international stock markets had some very dark days, 17,000 U.S. jobs unexpectedly "disappeared," and many experts feel that we're heading into a recession.
But there's reason for young people to look on the bright side. In fact, beginning your financial life during an economic correction or downturn can be a preferable thing in many ways. Here are a few of the positives:
1.) We won't expect to get rich quick.
Economic dramas shape an entire generation's beliefs about the nature of the economy and the risks involved. Just ask your grandmother, who experienced the Depression and is probably still saving rubber bands.
If you're in your 20s or early 30s, your living memory consists of a nearly unprecedented runup in stock market values -- the tech bubble of the 1990s. Bubbles by definition get people excited about making lots of money, fast. Thanks to the Internet, millions of people were able for the first time to pick, follow, and trade stocks for themselves. Unfortunately, the common outcome could be summed up by the title of film critic David Denby's book: "American Sucker." An affluent, well-connected New Yorker with ties to top stock analysts, Denby lost over one million dollars gambling on tech stocks.
Investors like Denby, who try to get rich quick by picking individual stocks, exemplify what is known in the investment world as "dumb money."
It's nearly impossible for you and me to beat the market consistently. And commissions, as well as trading and research costs, tend to eat up your returns if you try. It's a great lesson to learn by example -- not by experience.
You can also learn some lessons from the downturn of the housing market. In the past decade, it became much more common for first-time homebuyers to borrow big and hope to flip within a few years for huge appreciation -- 50 percent and up. But if you buy a house these days, you'd better love that city and that neighborhood, not buy more than you can afford, and be prepared to hold onto it for a long, long time.
2.) We'll get real about consumption.
Think about this: Consumer spending increased every year for the past 16 years. That's the longest buying binge Americans have ever gone on.
This spending increase was largely fueled by the runup in house prices, which allowed home-owning Americans to borrow against the cost of their homes. Consumer credit also expanded markedly over the past decade and a half.
For those of us in our 20s, this may mean that our parents borrowed against their home to send us to college or to pay for vacations or other luxuries while we were growing up. It also means that credit cards have always been there to fill the gap when we wanted a pair of shoes or a restaurant meal. Young people have been spending 16 percent more than they earn in recent years -- not a sustainable situation.
Well, now the credit market is tightening. As long as house prices are falling, not rising, home-equity loans will be harder to get. And in the general atmosphere of a recession, out-of-control spending tends to slow down as everybody tightens their belts. For example, this past holiday shopping season was the weakest in five years.
But did it really hurt your celebration with friends and family if the presents were a little less lavish?
3.) We'll buy on the cheap.
The current scary economic environment should not cause you to stuff your money under a mattress. The stock market may not be the best way to make a fast buck, but it is still the best long-term investment for your money; market returns average 7 percent to 10 percent over the long term (although your mileage may vary based on investment costs.)
And the "long term" means decades, not a few years.
Even with the recession in 2001-02, stock prices never really corrected to historical norms, which means they may still have a ways to fall. According to David Leonhardt of "The New York Times," the stock market is currently "overvalued" by 10 percent, relative to historical norms. And in a recession, the market sometimes plunges more than it should because of the mood of the investors, rather than because of underlying economic indicators.
That's bad news for people who are retiring now or in the near future. Your grandfather might have had a million dollars if he cashed out last year, and only $800,000 today. But it's good news for the average 25-year-old. You have most of your stock-buying ahead of you. You'll ideally be putting 10 percent to 15 percent of your salary each year into a retirement savings account that's invested in stocks. If stock prices go from "overvalued" to "undervalued", you're essentially buying in at a discount -- and you have plenty of time to see your investments appreciate.
As for the housing market, some are predicting prices will sink 25 percent to 30 percent in the next few years. At best, prices could remain flat while they catch up with rents. (Before the bubble, the monthly costs to rent a home were roughly comparable with the monthly costs to carry a mortgage. These days, in New York City at least, the same apartment that rents for $2,500 may sell for $650,000 -- $3,800 a month after a 10 percent down payment.)
So my advice (which I'm following myself) to would-be homebuyers is to watch and wait and keep your eye out for a bargain. Make a lowball offer and, again, you'll leave plenty of room for appreciation.
The next few years are going to be a real economic education for us all. In my next column, I'll talk about the two cardinal rules for the cautious slowdown investor: hold down costs and diversify.
