U.S. Bancorp has repaid $6.6 billion in taxpayer money, finally extricating itself from a federal bank bailout program that its chief executive, Richard Davis, had publicly criticized as "just trouble" and "lousy."
Ever since U.S. Bancorp and other major banks were told by the federal government to take bailout money last fall, most have been looking for an opportunity to pay it back. Bank executives argued the money came with too many strings attached and created the impression they were feeding at the public trough while others were struggling through a long and grueling recession.
Wednesday was the first day banks were allowed to begin repaying the bailout money after the federal government determined earlier this month that 10 of the nation's largest financial institutions had enough capital to exit the Troubled Asset Relief Program, or TARP. Every one seized the opportunity to repay.
Equity analysts argue the repayments are a necessary step toward rebuilding consumer confidence in the nation's large banks, still straining under the weight of bad loans and risky investments made during the real estate boom. And giving the money back means the banks will not have to wrestle with caps on salaries or restrictions on dividends.
Davis was among the outspoken critics of TARP. In a February speech, Davis said the program was well-intentioned, but he expressed frustration that healthy banks were forced to take the money even though they didn't need it.
In a statement Wednesday, Davis said repayment "allows our company to return to operating from a position of both independent strength and strategic flexibility."
Paying back the money will save banks hundreds of millions of dollars in dividend payments to the federal government. In U.S. Bancorp's case, that amounted to about $82.5 million per quarter.
But Jon Arfstrom, a bank analyst at RBC Capital Markets in Minneapolis, said the impact on U.S. Bancorp's earnings per share will be modest, in part because the bank recently issued $2.5 billion in new shares to fund the repayment, thus diluting the value of existing shares. "It's more symbolic," Arfstrom said. "It means they can focus on their shareholders and customers rather than pleasing the whims of Congress." Shares of U.S. Bancorp fell 9 cents Wednesday to $17.77 a share.
The others that said they are repaying TARP are J.P. Morgan Chase, Morgan Stanley, Goldman Sachs, American Express, Bank of New York Mellon, BB&T Corp., Capital One Financial, State Street and Northern Trust. The institutions will return $68 billion of the $200 billion the Treasury has invested in more than 600 banks.
TCF Financial Corp. of Wayzata was the first large bank in the nation to return bailout money when it repaid $361.2 million in April.
Wells Fargo received $25 billion in government assistance through TARP but is among the large banks that did not perform well enough on government "stress tests" to receive government approval to return the money.
However, even banks that have received the green light to return TARP haven't totally wrested themselves from government ownership. That's because the Treasury still owns tens of millions of warrants to buy shares of banks that participated in TARP."
In TCF's case, the federal government still owns warrants to buy 3.2 million shares of TCF stock at $16.93 a share. TCF has been negotiating with the Treasury since April over a purchase of the warrants. Bank spokesman Jason Korstange said, "This is the government. You just don't know what they're going to do."
Chris Serres • 612-673-4308