Bank of America to repay the government in full

Bank of America on Wednesday said it will repay all of its $45 billion in government loans, a move that helps remove the stigma of being a bailout recipient and potentially dials back government scrutiny of its operations.

The repayment to U.S. taxpayers will be made after the completion of a securities offering, the bank said. Shareholders will be asked at a special meeting to approve an increase in the bank's authorized shares as part of the offering. No date was set for the meeting.

The repayment means Bank of America is freed from executive compensation restrictions imposed by pay czar Ken Feinberg, which have hampered its search for a new top boss. The bank also will not have to clear other executives' compensation with Feinberg. And he will have no say on the final total compensation and pension for departing CEO Ken Lewis.

The bank indicated that it has approval of the U.S. Treasury and regulators.

"We are pleased that Bank of America is moving ahead with plans to pay the taxpayers back in full," a Treasury official said in a statement. "As banks replace Treasury investments with private capital, confidence in the financial system increases, taxpayers are made whole, and government's unprecedented involvement in the private sector lessens.

"While we have more work ahead to improve lending and spur job creation, today's announcement is another step in the right direction. We also welcome Bank of America's commitment to strengthen lending to small business and their on-going efforts to modify mortgages and keep more families in their homes."

Bank of America also said it agreed to increase its equity holdings by $4 billion by selling assets, actions that need to be approved by the Board of Governors of the Federal Reserve and under contract by June 30. If the asset sales are not completed by the end of 2010, the bank said it has agreed it would raise capital through a common stock offering.

Bank of America had signaled its desire to pay back the loans as soon as possible and has been in talks with the government about the process. But payback had not been expected so quickly, especially with the bank searching for a replacement for Lewis.

"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," Lewis said in a statement. "As America's largest bank, we have a responsibility to make good on the taxpayers' investment, and our record shows that we have been able to fulfill that commitment while continuing to lend. 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."

Last month, the federal government asked the largest banks that still hold money from the Troubled Asset Relief Program, including Bank of America, to submit their plans for how and when they expect to repay the money. The banks must show they can raise money from private investors in other words, without government backing and that even without the TARP money they would still meet stringent capital requirements that the government put in place after stress tests in the spring.

"We are ready and able to repay TARP," bank spokesman Scott Silvestri told McClatchy Newspapers last month. But he said the bank was "waiting for the government to establish the appropriate time."

Some other big banks, including JPMorgan Chase and U.S. Bancorp, have already repaid TARP. That made it even more of a stigma at Bank of America. The government aid only intensified the bank's other big problems, like finding a new CEO, defending itself in multiple investigations, and changing consumer policies to soothe angry customers and lawmakers.

That's because the $45 billion from taxpayers gave the public license to claim ownership in the bank and complain about it. It also meant that the government has its hooks in deeper than ever at the bank, evidenced most recently by the pay czar decreeing in October that Lewis shouldn't get paid for 2009.

Bank of America took its first helping of TARP in October 2008, when the Treasury created the program and instructed all of the country's biggest banks to take part. At the time, Lewis said the bank didn't need the money but was happy to participate for the country's good.

But then the bank needed an extra round of TARP money to help with its purchase of Merrill Lynch, which was racking up big losses. Lawmakers kept retroactively adding rules to TARP banks, and the public came to view the money as a "bailout" instead of a "capital purchase program," as the Treasury called it. By February, Lewis was saying he wanted to repay TARP "as soon as humanly possible."

(Published by Reuters - December 3, 2009)

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