Bank of America (BAC), the nation’s top lender and one of the world’s largest financial institutions, has managed to finally extricate itself from Washington’s grip. In a statement released on Wednesday the bank said it reached an agreement with the U.S. government to repay $45 billion investment provided under the TARP (Troubled Asset Relief Program) in the next few days.
The surprise announcement marks a victory for outgoing CEO Ken Lewis who has said that repaying the government was a priority for him and something he wanted to accomplish before stepping down at the end of the year.
“We appreciate the critical role that the U.S. government played last fall in helping to stabilize financial markets, and we are pleased to be able to fully repay the investment, with interest,” said Lewis. “We believe that this is good news, not only for the U.S. taxpayer and our company, but for the country as it is a milestone indicating that public policy has succeeded in helping our industry and the economy begin to recover.”
Lewis was forced to step down from his post as Chief Executive after the bank’s controversial takeover of Merrill Lynch last year.
Despite continuing problems with its loans to struggling homeowners and consumers Bank of America said it will repay TARP funds using $26.2 billion in ‘excess liquidity’ and $18.8 billion from issuance of ‘common equivalent securities’, according to the bank’s statement. The firm also said it plans to increase equity by $4 billion through asset sales — which is a plat that’s already approved by the Federal Reserve and contracted for by June 30, 2010 — and will issue $1.7 billion of restricted stock instead of incentive cash compensation to certain BofA employees as part of their normal year-end bonuses. The deal was with the gov’t was negotiated by Chief Risk Officer Greg Curl who has been mentioned as a contender to replace retiring Ken Lewis.
By paying back its rescue funds, Bank of America removes itself from limits on compensation required by Ken Feinberg, the U.S. special compensation czar, and most importantly, will shed much of the stigma associated with financial institutions that received more than one federal bailout.
To date, BofA has paid $2.54 billion in dividends to the U.S. Treasury on the TARP investment.