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Bank of America returns $45 billion to the government
The largest US bank, Bank of America (BofA), will return to the state the funds provided to it at the height of the financial crisis. By handing over $45 billion, the bank will escape strict government control. In particular, the company will completely remove restrictions on the payment of bonuses, and it will be easier for the bank to acquire a new CEO, who should replace the outgoing Kenneth Lewis.As noted in a statement released yesterday by Bank of America Corp., the company will pay funds to the Troubled Asset Repurchase Program (TARP) fund using $26.2 billion of “excess liquidity” and $18.8 billion raised as a result of an additional share issue. . BofA's repayment will be the largest among companies and financial institutions that received financial support from the US government during the crisis. Now serious pressure will fall on other recipients of government support, including Citigroup and Wells Fargo.
In turn, American taxpayers will earn $3.6 billion in dividends from government-owned shares by supporting the bank.
“We are grateful to the U.S. government for the significant role it played in stabilizing financial markets last fall, and we are pleased that we can fully return the funds allocated to us,” said the bank's head, Kenneth Lewis, in a statement. "This decision will remove the stigma from our company," said Bank of America spokesman Robert Stickler. “It will help us compete with our peers, including JPMorgan Chase & Co., which has already paid off its TARP debt.”
Repayment of the debt will allow the bank to easily hire a new CEO, who will not be afraid of being deprived of bonuses. One of the main lobbyists for the return of funds is the bank's chief risk manager, Greg Curl. He is also called the main candidate to succeed Mr. Lewis.
“It seems that this was done for the sake of the new CEO. The restrictions on compensation and everything else that is associated with government intervention are being lifted,” Racine fund analyst William Fitzpatrick told Bloomberg. However, while there is an opportunity, the “salary czar” Kenneth Feinberg is not wasting time and reducing bankers’ incomes. Yesterday, he achieved a reduction in salaries for two more top managers of Bank of America - the bank's financial director, Joe Price, and the head of the mortgage division, Barbara Dezoer. Their salaries were reduced from 800 thousand dollars to 500 thousand. In addition, the difference for excess funds for transport compensation, the amount of which is limited to 250 thousand dollars per year, will be written off from the accounts of managers. However, Mr. Feinberg has not yet succeeded in getting the bonuses cancelled. Joe Price will receive shares of the bank worth $5.3 million, Barbara Dezoer - $3.95 million.
Bank of America CEO Kenneth Lewis announced back in September that he would leave his post by the end of this year. However, despite this, the series of accusations against the bank rescued by the state did not stop. The US Securities and Exchange Commission (SEC) filed a lawsuit against Bank of America, suspecting it of deceiving investors in the situation with the payment of bonuses to top managers of the investment bank Merrill Lynch. During its acquisition of Merrill last year, BofA executives promised that no bonuses would be paid to employees of the acquired company without a shareholder vote. However, it later became known that BofA management allowed Merrill Lynch to pay its managers about $5.8 billion in bonuses before completing the deal. And this despite the fact that the investment bank lost $27.6 billion last year. In October, the American authorities managed to force BofA to issue documents related to the takeover of the investment bank Merrill Lynch. These papers should explain to prosecutors the details of a deal in which shareholders were misled about the payment of bonuses to Merrill's top managers.
Against the backdrop of the decision to pay off the debt, Bank of America securities rose by 3.7% in New York trading. Overall, the stock is up 11% for the year after falling 66% in 2008. The growth of BofA securities contributed to the rise of US stock indices. The dollar exchange rate, in turn, fell below 1.51 dollars per euro.
“News from Bank of America and positive economic data show that the economy is still growing and markets will move higher. Risk appetite is rising and keeping stock prices high,” Peter Cardillo, chief economist at Avalon Partners, told Reuters.