Lenders to Return $68 Billion

Ten banks allowed to pay back TARP

Leading lenders expected to return a total of $68 billion in bailout funds to taxpayers. JPMorgan Chase and U.S. Bancorp confirm they have been approved.

By David Ellis, CNNMoney.com staff writer

Last Updated: June 9, 2009: 12:08 PM ET

NEW YORK (CNNMoney.com) -- Ten leading banks won approval to repay money from the government's controversial TARP program, regulators said Tuesday, which could represent approximately $68 billion in bailout funds returned to taxpayers.

The Treasury Department, which has overseen the $700 billion Troubled Asset Relief Program, did not indicate which banks were included in that group, although most lenders confirmed the news separately.

Eight of the nine banks that were found to not need new capital following the government's bank stress tests last month made the list. JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), American Express (AXP, Fortune 500), Bank of New York Mellon (BK, Fortune 500), State Street (STT, Fortune 500) as well as regional banking giants Capital One (COF, Fortune 500), BB&T (BBT, Fortune 500) and U.S. Bancorp (USB, Fortune 500) all said they will pay back TARP funds. (Insurer MetLife also was not required to raise capital but it did not receive any TARP money.)

Investment bank Morgan Stanley (MS, Fortune 500), which was the only financial firm that regulators did ask to raise money after the stress tests, confirmed it also won approval from the Treasury Department to pay back $10 billion.

Chicago-based Northern Trust (NTRS, Fortune 500), which took in $1.576 billion under the program but was not part of the bank stress tests, also announced Tuesday it is paying back TARP funds.

So far, the Treasury Department has allowed nearly two dozen small, mostly community-based lenders to redeem the government's preferred shares, representing nearly $1.9 billion in taxpayer money.

Should the latest banks agree to redeem the company's preferred-shares the government acquired last fall, that would represent approximately another $68 billion in TARP repayments.

"These repayments are an encouraging sign of financial repair, but we still have work to do," Treasury Secretary Tim Geithner said in a statement.

Proceeds received from those 10 banks will be applied to the Treasury Department's general account, the agency said Tuesday, some of which be will used to promote financial stability should the economy take a turn for the worse. A portion of those funds will also be used to reduce Treasury's borrowing and the nation's rapidly rising level of debt.

The banks that buy back the government's stake will also be able to repurchase the warrants, or rights to purchase shares at a future date, the government acquired when it injected capital into many of these banks late last year.

Treasury said those obligations could be purchased at a "fair market value", but that banks wishing to repurchase warrants would have to hire an independent advisor to come up with that number. Those estimates, however, would have to match those of the Treasury Department before banks get the go ahead to repurchase the warrants.

Leading up to Tuesday's announcement, there had been talk that the government may auction those warrants on the open market in order to quell criticism about their pricing. Some have charged that allowing banks to redeem warrants at too cheap of a price would be to the disadvantage of U.S. taxpayers who stand to make significant gains should bank stocks continue to move higher in the months and years ahead.

Large lenders have been working particularly hard to break free from the TARP program for several months. Many have raised billions of dollars in fresh capital in recent weeks and issued debt without government backing.

Casting off the 'scarlet letter'

Banks have grown increasingly frustrated with the program amid increasing government restrictions, including limitations on the hiring of foreign workers. Wall Street firms have also complained intensely about the compensation restrictions associated with the program, noting that many top performers have already lured away by foreign banks or the hedge fund industry.

Bank executives, including JPMorgan Chase chief Jamie Dimon, have complained publicly in recent months about such restrictions. Dimon, who famously called the program a "scarlet letter" for banks, said he was encouraged by Tuesday's announcement, adding that the funds from the program were best used elsewhere.

"Paying back TARP at this time is the right thing for JPMorgan Chase, and it's the right thing for our country," Dimon said in a statement.

Tuesday's announcement, however, represents a major compromise from government officials. Regulators have been fearful about the nation's largest banks' ability to weather the current economic climate as the unemployment rate marches higher and signs of trouble crop up in new areas like commercial real estate.

Last month, the government found that the nation's 19 largest financial institutions that participated in the stress tests could suffer as much as $599 billion in losses over the next two years.

Regulators have also been fearful that major financial institutions, which are responsible for issuing a substantial amount of credit to the U.S. financial system, may scale back on lending even further as a result of paying back TARP funds and could thus jeopardize what may be a nascent economic recovery.

Several bank chiefs downplayed these concerns in statements issued Tuesday, arguing instead that they will be there for consumers and businesses seeking loans.

"We fully expect to continue to vigorously offer lending opportunities to our credit-worthy consumer, small business, corporate and institutional customers, invest for future growth and support the U.S. government's overall efforts to stimulate the economy," Richard K. Davis, chairman and CEO of U.S. Bancorp, said in a statement.

One key question, however, is what will happen to the troubled major financial institutions that remain under the government's thumb, such as Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500).

Industry experts have suggested that such banks could remain at a severe competitive disadvantage, burdened by the hefty dividend on the government's preferred shares, as well as the possibility of losing business or employees to non-TARP rivals.  

First Published: June 9, 2009: 10:21 AM ET

Job losses slow dramatically

Employers cut 345,000 jobs in May, the smallest loss since September. But the unemployment rate hit a 26-year high and experts say the market is still weak.

By Chris Isidore, CNNMoney.com senior writer

Last Updated: June 5, 2009: 10:44 AM ET

NEW YORK (CNNMoney.com) -- Job losses slowed dramatically in May, according to the latest government reading on the battered labor market, even as the unemployment rate rose to a 26-year high. But some experts cautioned that the job market remains weak.

Employers cut 345,000 jobs from their payrolls in the month, down from the revised decline of 504,000 jobs in April.

This was the fewest jobs lost in a month since last September, when the bankruptcy of Lehman Brothers caused a crisis in U.S. financial markets and choked off credit for many businesses. Economists surveyed by Briefing.com had forecast a loss of 520,000 jobs in May.

There were still widespread job losses, as most sectors of the economy, including manufacturing, construction, retail, and business and professional services posted declines in jobs.

But there were also some signs of growth, notably in education and health services, as well as the leisure and hospitality sector. Nearly one third of industries added jobs during the month, the highest level of gains since last October.

Still, the unemployment rate rose to 9.4% from 8.9% in April. Economists expected unemployment would increase to 9.2%.

Strangely enough, economists said the rise in unemployment is partly a sign of an improved jobs outlook. That's because people who had stopped looking for work started looking once again, and thus were classified as unemployed rather than "not in the labor force" - which is how the Labor Department counts most discouraged workers.

"As conditions improve more people flock to the labor market," said Robert Brusca of FAO Economics. He believes the economy is poised to start adding jobs before the end of this year.

"Jobs are doing what they do at the end of recessions and in early recoveries," he said. "No one can be optimistic enough to catch the turn when it comes."

But other economists cautioned that even though it was a better-than-expected jobs report, there are still signs of weakness.

Kurt Karl, chief economist at Swiss Re, said he doesn't expect a monthly gain in jobs until at least the middle of 2010. With employers still cutting jobs and hours, he said consumers won't have enough money to spur an economic recovery in the near term.

"I think things are turning for the better. But it's a disappointingly slow turn," he said. "Consumers can't consume more with this kind of picture."

Karl pointed out that the loss of 345,000 jobs in a month was worse than any one-month drop in the previous three recessions. There have now been 6 million jobs lost since the start of 2008, with nearly half of them occurring in the first five months of this year.

"That 345,000, while an improvement, is still a lot of jobs," he said. "We're not out of the woods yet."

The unemployment rate was the highest since August of 1983. And the official unemployment rate only captures part of the pain being felt by job seekers.

More than a quarter of unemployed people have been out of work for six months or more, and the number of long-term unemployed reached nearly 4 million, the highest reading on records that go back to 1980.

There were also 9.1 million people who were working part-time jobs because they could not find full-time work or they had their hours cut back. This was also a record high.

When counting people who wanted full-time work who are working part-time, as well as some of the people who are not counted as unemployed because they had stopped looking for work, the so-called underemployment reading rose to a record level of 16.4%.

What's more, the average work week slipped again to a record low 33.1 hours. That pushed average weekly wages down as well during the month.

Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment staffing firm, said the average hours worked will have to increase before the economy will be ready to start adding jobs again, as employers will be cautious about restarting their hiring.

Gilliam is also concerned that the number of temporary employees fell for the 17th straight month, another sign of employer wariness.

"That's doesn't suggest a dramatic improvement in hiring soon," he said. "We're still in a difficult labor market and it's going to take us time the rest of this year to work through to where companies are adding back jobs." 

First Published: June 5, 2009: 8:41 AM ET