Getting Out From Under the TARP (AXP, BK, BBT, COF, GS, JPM, STT, USB)

The Treasury is finally allowing some of the TARP recipient banks that posed the least systematic risk to begin repaying the Treasury’s preferred stock funds.  This will get these institutions out from under as much oversight from regulators, but more importantly it will take away the political-risk headlines and will reduce some of the importance over issues such as compensation and total loans.  This list is partial and please be advised that it may change.  We believe that these eight are among the ten banks which will be allowed to buy back the Treasury’s preferred shares:

• American Express Co. (NYSE: AXP)
• Bank of New York Mellon (NYSE: BK)
• BB&T Corp. (NYSE: BBT)
• Capital One Financial Corp. (NYSE: COF)
• Goldman Sachs Group Inc. (NYSE: GS)
• JPMorgan Chase & Co. (NYSE: JPM)
• State Street Corp. (NYSE: STT)
• USBancorp (NYSE: USB)

There is only one problem here. We have seen a figure over and over that $50 billion is the amount that will be allowed to be repaid.  The issues is that the $50 billion will easily be hit depending upon how much each bank will be allowed to repay.  What may be possible is that you could see the allowance of partial repayments.  This is merely speculation of course, but part of the reasoning for this is that JPMorgan is literally half of that amount.  Add in the $10 billion from Goldman Sachs, and you are already at $35 billion.

We think that this amount of $50 billion may be a form of a minimum benchmark if ten or more of the largest TARP recipients will be allowed to pay these down entirely.  The issue at hand is that if the banks do not get out from under the TARP entirely, then they could become subject to the notion of compensation guidelines which are supposed to come out tomorrow.

We will have a formal list later this morning.  Again, this list is a calculation list rather than an official government list.  There is a chance that some of these banks will not be on the list and we still see at least a slight chance that Uncle Sam may allow only partial repayments in this first round of repayments.

Jon C. Ogg
June 9, 2009