Wells Fargo & Co. announced late Monday that it’s won approval for a deal to repay the $25 billion it secured last year under the Troubled Asset Relief Program.
San Francisco-based Wells Fargo said in a statement that under terms approved by U.S. Treasury and banking regulators, it will pay back the funds after it completes a $10.4 billion common stock offering.
It becomes the last major lender to announce a return of the government funds, after rival Citigroup Inc. said earlier in the day that it too would repay its TARP loan.
“We’re ready to fully repay TARP in a way that serves the interests of the U.S. taxpayer, as well as our customers, team members and investors,” Wells Fargo CEO John Stumpf said in a statement.
In September, Wells Fargo had announced plans to repay TARP without selling new stock and thereby diluting existing shareholders.
Repaying TARP will eliminate $1.25 billion in annual preferred stock dividends, and will be slightly accretive to per-share earnings in 2010, Wells Fargo said.
The deal to repay TARP could remove Uncle Sam as a stakeholder, and eliminate the ability of the government to directly influence the firm’s executive compensation. It could also help the bank lure in investors and customers that may have looked to rivals not tethered to government aid.
Wells Fargo’s move came only hours after Citigroup unveiled plans to repay some $20 billion in TARP support, by selling securities. Under the terms of that deal, the Treasury Department will sell $5 billion in Citigroup’s common shares in a secondary offering, with plans to unload the rest of its stake in the next six to 12 months.
Wells Fargo never wanted the government’s financial assistance, and bridled at the increased level of regulatory supervision that came along with it.
Warren Buffett, chairman of Berkshire Hathaway Inc. — the bank’s largest shareholder—has publicly criticized the government’s assigning of capital to the company, arguing that it was largely unnecessary.
Treasury Secretary Timothy Geithner said last week that the government doesn’t want banks to repay TARP if that leaves them short of necessary capital.
“We are not prepared to have this money come back in a way that would leave the system or these institutions with inadequate capital to face their challenges ahead,” Geithner said during a Congressional Oversight Panel hearing on TARP.
Wells Fargo said Monday its plan to repay TARP includes raising $1.35 billion by issuing common stock to company benefit plans, “and in lieu of a portion of 2009 incentive cash and other compensation to certain Wells Fargo team members.”
In addition, Wells Fargo will increase equity by $1.5 billion “through asset sales to be approved by the Board of Governors of the Federal Reserve.”
(c) 2009, MarketWatch.com Inc. Source: McClatchy-Tribune Information Services.