MStanley in race to repay TARP funding
MORGAN Stanley became the latest Wall Street bank to raise capital in an effort to meet the US government’s criteria for paying back state rescue funds yesterday, announcing that it plans to sell common stock worth $2.2bn (£1.3bn).
Ten US banks were told to raise new capital earlier this year, after stress testing by regulators determined that they would be at risk in the event of another lurch downwards in the global economy.
Morgan Stanley was told to find $1.8bn in new capital after the stress tests, but despite having raised $4.57bn last month, has not yet been given approval to start repaying the $10bn loan it took from the Troubled Asset Relief Programme (Tarp).
Rivals JPMorganChase and American Express (Amex) also unveiled their own capital-raising initiatives this week, the former announcing it would raise $5bn to repay its $25bn loan, while Amex opted to raise $500m to help it repay $3.4bn.
The two banks echoed earlier share issue plans unveiled by BB&T, US Bancorp, Capital One Financial and Bank of New York Mellon, all of which passed the stress tests.
Goldman Sachs meanwhile has raised $1.9bn by selling its stake in Industrial and Commercial Bank of China, while Bank of America has raised nearly all of the $33.9bn required by regulators.
All of those banks with the exception of Bank of America and Morgan Stanley passed the stress tests, but raised funds anyway to meet certain conditions for the repayment of their Tarp loans.
The Federal Reserve said earlier this week that banks hoping to repay Tarp must show that they are in good financial health.
The Fed demanded that banks show they could access public equity markets, sell long-term debt without government backing, foster lending, maintain sufficient capital, meet their funding obligations, and support their subsidiaries.
The largest 19 US banks have been loaned $229bn under Tarp to date, from an available pool of $700bn.
The race to repay the funding has been seen as something of an exercise in one-upmanship, with Wall Street’s finest keen to show that they, unlike their rivals, are in a position to free themselves of state aid.
But the Obama administration has poured cold water on the eagerness to repay Tarp funds by imposing such strict criteria.