Can B of A Really Pay the TARP Back That Fast? (BAC, C)

Bank of America Corp. (NYSE: BAC)  is now claiming it could pay back the TARP monies late in 2009 or in 2010, earlier than expected.

In a report from the Charlotte Observer, CEO Ken Lewis said this is dependent on the economy.  He also reaffirmed that the bank would be profitable in 2009 barring an unexpected meltdown.  There are some interesting points that could get more heat off the bank.
According to the paper, Lewis wants the bank to be making $30 billion per year before he retires.  Lewis also told the Observer that he believes the bank will pass stress tests from the government. Moreover, he reiterated his previous comments that taking so much  TARP money got the bank lumped in in the minds of Wall Street with financially troubled institutions such as Citigroup Inc. (NYSE: C).

What is interesting is that this “new” timeframe for TARP repayment is much sooner than Lewis’ prior two- to three-year time horizon.  He has said the bank could pay the money back now if it did not need to keep its capital ratios up because of the billion in troubled assets that have to be offset by solid capital.

Lewis may inadvertently be cornering himself.  There is a media and public feeding frenzy (a massive understatement) against wealth and  anyone on the government teat right now.  There will be many constituents to answer to if the company is now not profitable or if the bank is slow to begin paying back the TARP money.  Lewis has hinted at some staggered payments before and hinted at profitability with an unstated metric of GAAP or from normalized operations.

Lewis should start paying back TARP monies, even if it is staggered.  He will have much more leeway with what he can do in a climate where janitors and construction workers feel they have a say in what goes on in the business community.  B of A does currently have to keep offsetting the garbage on the books with good capital that could have otherwise be used to repay Uncle Sam ‘s TARP money.  That may change if FASB really does get some new “exceptions” in for mark-to-market under some new guidelines.  Once Bank of America starts paying that money back, Lewis won’t have to tolerate as much heat.

Here is a link to the interview from the Charlotte Observer.

JON C. OGG