Bank Of America Wants To Begin Paying Back Bailout Money, Avoid Government "Fee"
The Wall Street Journal says that Bank of America is interested in paying back a portion of the bailout money it received, with the goal of getting out from under the purview of the salary czar and reduce a "layer of federal involvement in its affairs."
From the WSJ:
The bank isn't offering to repay all of its $45 billion in aid from the Troubled Asset Relief Program, as several other banks have done. Instead, BofA is suggesting it could start with the $20 billion of additional aid supplied in January when the bank was hesitating to complete its takeover of loss-ridden Merrill.
Repaying this would mean BofA would no longer be considered an "exceptional" aid recipient — a designation that has put it under a microscope by Congress and regulators, with its pay packages subject to review by the federal "pay czar."
In a somewhat ironic twist, Bank of America is also trying to get out of a loss-sharing agreement it has with the government, but according to the WSJ, there is a dispute about... well... it sounds like an early termination fee to us:
In addition to giving Bank of America extra TARP money, the government agreed in January to absorb a chunk of losses on a $118 billion pool of assets owned by BofA and Merrill. The bank would be on the hook for the first $10 billion in losses, and the U.S. would cover 90% of the remainder....
If the bank wanted to end the arrangement, an "appropriate fee" was required. The Treasury and the Federal Reserve are asking the bank to pay between $300 million and $500 million to end this plan and pushing executives to consider a number on the high end of that spectrum, said a person close to the situation. The bank is now considering the request.
What's the word for this? Oh yes, schadenfreude.
BofA Seeks to Repay a Portion of Bailout [WSJ]
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Comments:
I call shenanigans.
As an investor in (read: taxpayer to) the United States of America, I request that my board of directors (Barack, Ben, Tim, et al) decline Bank of America's offer as insufficient for repayment. I would like to see BofA repay every single TARP dollar received, plus a nice ROI.
The whole idea behind TARP was immediate relief for financial institutions with the idea that that relief would pay off for the government in the future. It happened with Citi, although in that case the government converted their stake into actual stock ownership, and has a sizable equity position now because of it.
I know we will never see the $120 billion we spent absorbing BofA's defaulted assets, but banks have proven that once those assets are off the books, they are making money by the fistful again.
I propose an ETF of $25 billion. That's a decent return on my investment.
@zacox:
Again, I think you've misread the text: they say they want to START with a repayment of 20 billion to remove an extra layer of scrutiney.
@nullrout: Didn't misread. I dont want $20 billion. I want it all. I can wait, but in the meantime, I want my board of directors to be watching them closely to make sure that NO part of my investment is in jeopardy or spent foolishly.
If they're financially stable, they can pay back everything they owe us plus interest, then they don't have to worry about the additional federal regulations.
Banks were forced to take money because they were teetering on collapse, but they would rather risk collapse and take the economy with them, rather than deal with government regulations.
@bloggerX: comon ppl... read. it jus says tht they are going to pay 20b now. the rest they will pay later. no one is running with the money.
Harvard Business Review had an interesting article this month about executive pay. Their argument relied largely on slippery slope, i.e. "if the shareholders get to vote on pay, then they will want votes on other things". Well, yes.
@nullrout: Actually the article says they got $65 billion in aid (45 at first, the another 20 later) and are offering at this point only to pay back the latter installment. The first 45 are still outstanding.
In what world is a $45 billion loan not considered exceptional?
I'm thinking it's time for some anti-trust work to be done on these banks. Sounds like that "too big to fail" is not the way your banking system should be run.
The gov't should start nickel and diming B of A with a monthly fee for mailing a paper statement and a charge for talking to a teller/gov't official. Then B of A will know how I feel. :-)
@shadow67: I'm sorry, where does it say they intend on paying all of it? By reading, it says "The bank isn't offering to repay all of its $45 billion in aid from the Troubled Asset Relief Program, as several other banks have done."
@Warren: This is the best idea ever!
Send them a letter saying fees are changing and they can either suck it up or pay everything back. The just lay the fees on them.
Missing the monthly minimum payment (what's 5% of 65 billion?) will result it the gov't raising the interest rate. What do you think, start at a nice 17% and go up from there?
@shadow67: What about the "common people"? They're being screwed? Or did you mean "come on" and you're not fluent in English?
From the article: "would enable BofA to reduce a layer of federal involvement in its affairs."
You mean the layer that stopped BofA from going under? You needed a really big loan because you screwed up your business and now you complain about the "person" giving you a loan poking around in your business. Yet another definition of chutzpah.
Nearly every proxy vote I get now has shareholders voting for executive pay/options/perks. If you think executive pay is still too high, sell the stock.
@zacox: Nice letter, but there are about 61 million "shares" (i.e. taxpayers) outstanding. Perhaps you can make an argument that your voice should count for more than 1/61 million of any decision since you pay more than some people in taxes, but that'll get you your voice up to a few millionths at best.
@Mr.Duke: What? Why would you sell the stock instead of voting? If you sell it, you get no (non-binding) votes. If you keep it, you get to vote your shares.
Maybe I misunderstand.
@ColoradoShark: BofA wasn't in danger of going under. They needed a really big loan because the government wanted them to absorb some "too-big-to-fail" companies that were going under, like Countrywide and Merryl Lynch.
Not all bailouts were created equally, my friend. Some "bailouts" were given under intense pressure to banks that didn't need them. Others, like BofA's were given to companies that were being asked to do extraordinary things and thus wanted assurances from the government that they wouldn't have to shoulder all the risk that comes with saving the economy.
If your anger here is directed at Bank of America, it's misplaced. Your anger should be directed at the government and specific people with names like Henry Paulson, who put Bank of America in this position. Bank of America, if you'll recall, had a strong position during the crisis and was tasked by the government to absorb Countrywide and Merrill Lynch.
It's a bit like the government forced Bank of America to save the economy with a few hours notice on a Saturday, gave them some money to help, and then said "Well, now that we shoved so much money down your throat and you failed to resist, we get to tell you what to do."
So basically, what we have here is that Bank of America has money it never wanted, that came with terms it didn't want, and now it wants to get rid of that money. I see no problem with that.
Shouldn't we be happy they are as least paying something back? and not just keeping it? I guess for some people here they could give back all the money and they would still complain!
Now I can see why companies don't like customers anymore or the goverment.
Will they pay an early repayment fee just like the banks charge when you settle early?
Is there any way we could change the interest and payment date on them - at random. I'd love to sucker-punch some extra fees out of them!
Michael, read the story. They don't want to give back all the money, just enough so that executive pay is not overseen. If BOA didn't need the money, then they would have been able to pay the money back by now. They don't have it and therefore they needed it. BOA is one of the causes of this mess, not to mention that they treat their customers like shit that should be happy to be allowed to do business with them. Why people do business with them, I will never know.
@statgrad: Apparently, $45 billion is exceptional while $25 billion, is not. They want to pay $20 billion of the $45 billion they owe so that they fall out of "exceptional loan" status. I say, anything over $500 million should be an "exceptional" loan.
We should also charge like loan sharks... 25% interest on the money...
In my opinion the news of late, such as the news that some of the loaned money is being returned at profit, is that TARP worked fairly well. The caterwauling of how it would just be a budgetary loss is starting to lose its shine now that banks are paying it back.
We pushed for additional regulation and rules for TARP money under the rationale that you don't get public handouts for free. Hell, I have to dot every I and cross every T just to get UI, and welfare recipients also have to jump through hoops, all for a measly couple hundred a week -- why should huge multinational banks get billions with no strings?
The rationale behind the regulations on small-time handouts (UI and welfare) is to encourage people to find alternatives so as to get off those programs. In the banks' case, it seems to be working well.
They don't want the additional regulation. That's fine, but they don't get the additional money. Works for me, and apparently for them too.
Wonder how many other government programs are likely to turn out much better than the rabid naysayers insist they will?
I believe that when BoA received the first 45000 million Dollars, the designation of
"exceptional" aid recipient did not exist. It was only after the second round of bailout money that the designation came into existence.
In essence, BoA wants to repay the 20000 million Dollars to remove that special designation so that they can now make giganticnormous profits again, not be under the purview of the salary czar, and pay the rest of the money back whenever they feel gracious enough to get around to it, because as we all know, they are the Masters of the Universe again.
@Starfury: You know, we could have skipped the bailouts last year and let insolvent banks go through the bankruptcy process.
Again, two words: Credit Union :)
If you're not using a credit union, you're losing money! Banks are the debil!
@ARP: >>Banks were forced to take money because they were teetering on collapse, but they would rather risk collapse and take the economy with them, rather than deal with government regulations.<<
Isn't that how we ended up in the depression, I mean, recession in the first place?
@JeffMc: It's not finished until the government "accidentally" deducts the $20 billion twice, charges the bank a $235 million "overdraft" fee, then acknowledges their mistake but says there's nothing they can do to correct it.
So BoA gets $45 billion, offers only to pay $20 billion back to be left alone and doesn't care about the rest of the money??? Can't WAIT to see their 10K report!