Archive for Tuesday, June 9, 2009

Selected banks to return bailout money

June 9, 2009

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— Banks have been eager to pay back bailout money almost since the moment they first accepted it. Now the government is deciding which banks can return the cash — at the risk of setting up a system of winners and losers.

The Treasury gets to determine which banks can quit the $700 billion Troubled Asset Relief Program, loosening the federal grip on the banking sector eight months after Congress approved the rescue package. An announcement could come as early as today.

The repayments, which could exceed $50 billion, reflect a measure of stability that has returned to the banking system in recent months. But experts say the crisis isn’t over and warn that the repayments could widen the gap between healthy and weak banks.

Banks started railing against the TARP almost immediately after they accepted the help. One CEO, Jamie Dimon of JPMorgan Chase & Co., called the money a “scarlet letter,” referring to the public backlash and federal scrutiny that came with it.

Banks that are expected to get a green light to repay bailout funds include JPMorgan, Goldman Sachs Group Inc. and American Express Co. They would be free of federal rules ranging from caps on executive pay to restrictions on dividend payments.

But weaker banks such as Citigroup Inc. and Bank of America Corp. would remain tethered to the government and face a problem — how to compete for business and top workers against rivals operating more freely.

Investors are also keeping score. Stock in Citigroup and Bank of America, which received a combined $90 billion in TARP money, has plunged. Investors will probably keep favoring firms that show they can stand without federal help, one expert said.

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