Morgan Stanley, JPMorgan Chase & Co. and American Express Co. moved closer to repaying government bailout money, announcing a series of new stock sales.
The stock offers disclosed late Monday and Tuesday are a precondition for the financial companies to pay back loans received under the Troubled Asset Relief Program last fall. The Treasury Department is expected to announce next week the first group of banks that will be allowed to repay the money.
Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. said banks want to sell stock so they can repay TARP as soon as possible, and also to take advantage of investors' current appetite for financial stock.
"The market (for bank stocks) could be open for another three weeks, it could be closed in three days," Miller said.
Hundreds of banks received funds as part of the $700 billion program last fall as the government tried to break a logjam in lending and in credit markets. The largest recipients are now itching to unburden themselves of the loans and the government oversight that comes along with them, although the government must approve any applications from banks to repay the funds.
"They want to get out from under the 'Scarlet T' as fast as possible," Miller said.
A big reason why banks are anxious to repay the money is because TARP limits how much they can pay their executives. The companies say that has made them less able to attract and retain talented employees.
Treasury Department spokeswoman Nayyera Haq declined to comment on the TARP repayment process.
JPMorgan priced an offer Tuesday to raise $5 billion, while American Express said it would raise $500 million and Morgan Stanley said it would raise $2.2 billion. Goldman Sachs Group Inc. and Bank of New York Mellon Corp. have previously raised funds with the goal of repaying TARP funds as well.
Keefe, Bruyette & Woods Inc. analysts said the savings banks would get from repaying government loans would far outweigh the negative effect that new shares would have on banks' stock prices. Analyst David Konrad increased his earnings estimate for JPMorgan based on its stock offer, while analyst Sanjay Sakhrani said repaying the loans could increase earnings for the year by as much as 20 cents per share.
Morgan Stanley received $10 billion in TARP funds, while JPMorgan received $25 billion and American Express received about $3.4 billion. In return for the loans, the government received preferred shares and warrants to purchase common stock. It is still unclear how much it will cost banks to repurchase the warrants.
The wave of stock offers comes less than a month after banks began going to the market to help meet capital shortfalls outlined by the government's stress tests. The tests were designed to see if 19 of the nation's largest financial firms would need additional capital to cover further losses if the economy worsened.
Both JPMorgan and American Express did not need additional funds, but Morgan Stanley was told it needed $1.8 billion. After the stress test results were announced, Morgan Stanley immediately raised $3.5 billion in stock, more than covering that shortfall.
Other banks also said to have shortfalls against potential future losses embarked on capital raising efforts as well, including Bank of America Corp, which needs to raise the most cash, $33.9 billion. As of Tuesday the bank said it has raised almost $33 billion through stock offerings, asset and investment sales and the conversion of preferred shares to common stock.
Like other major banks, BofA has also said it would like to repay the TARP funds as soon as possible, but it will first have to complete its stress-test related capital raise before applying to repay TARP.