December 04, 2009
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News: BofA Prepares to Repay TARP
Bank of America (BofA) announced earlier this week that it has made provisions to pay back the taxpayers back the $45 billion in bailout money. The nation's second largest credit card company sold over a $19 billion of equity on Thursday to escape government scrutiny aimed at protecting taxpayers. Earlier this year, Bank of America along with most of the nation's largest credit card companies borrowed under the Federal Government's Troubled Asset Relief Program (TARP) which was aimed at promoting market stability in the midst of a troubled mortgage crisis. After accepting billions of dollars in taxpayers' money to repair a mismanaged credit card and financial industry, banks handed out millions of dollars in bonuses to the same executives responsible for the poor management.
Among taxpayer outrage, Bank of America defended its actions by saying it was necessary to pay out large bonuses to attract and maintain top notch executives. The giant credit card company complained that the government's restrictions on executive bonuses puts the company at a disadvantage and has handicapped the company's efforts to secure a new CEO. Kenneth D. Lewis, the current CEO is scheduled to retire soon. To get out from under the government regulations, Bank of America liquidated over $19 billion of equity that will help to repay the $45 billion. The deal which was originally scheduled to take place next Monday started out at $18.8 billion but grew to $19.29 billion. The balance of the $45 billion was raised through the credit card company's stock earnings.
Repaying its debt to taxpayers will also save Bank of America nearly $3.6 billion in dividend payments. Despite the company's gains, their credit card and lending divisions continue be a problem as high delinquencies and write-offs continue to plague the company. Bank of America has been trending much higher in write-offs than its competitors. However, Chief Financial Officer Joe Price indicated that card defaults are beginning to level off.