Financial service provider Wells Fargo & Co. (WFC) said Monday it will repay $25 billion to the U.S. Treasury availed by the company in October 2008 under the government's Troubled Asset Relief Program on completion of a $10.4 billion underwritten common stock offering.
The San Francisco, California-based company would redeem series D preferred stock issued to the U.S. Treasury for the $25 billion it had received from the Treasury. Repaying the money received under the Troubled Asset Relief Program or TARP will eliminate $1.25 billion in annual preferred stock dividends, and will be slightly accretive to earnings per share in 2010.
The repayment to the Treasury, however, is expected to reduce income available to common shareholders in the fourth quarter by $2 billion, as the book value of the preferred stock is less than the amount paid.
President and Chief Executive Officer John Stumpf said, "TARP stabilized our country's financial system when confidence in financial markets around the world was being tested unlike any other period in our history. Its success also generated financial returns for taxpayers, including $1.4 billion in dividends paid to the U.S. Treasury by Wells Fargo."
"Now we're ready to fully repay TARP in a way that serves the interests of the U.S. taxpayer, as well as our customers, team members and investors," Stumpf added.
The company in addition to the common stock offering plans to raise $1.35 billion through the issuance of common stock to Wells Fargo benefit plans. The company also plans to increase equity by $1.5 billion through asset sales, which is yet to be approved by the Board of Governors of the Federal Reserve.
The underwritten offering has an option which allows the underwriters to buy additional $1.56 billion of Wells Fargo common stock, exercisable within 30 days from the date of the offering.
Wells Fargo Securities and Goldman, Sachs & Co. are acting as lead underwriters for the offering.
For the recent third quarter, Wells Fargo had reported net income applicable to common stock of $2.64 billion on revenues of $22.5 billion. On non-GAAP basis, the company's adjusted net income for the second quarter was $3.24 billion.
Following redemption of the series D preferred stock, the U.S. Treasury Department, however, would still continue to hold warrants to purchase approximately 110 million shares of Wells Fargo common stock at an exercise price of $34.01 per share.
Wells Fargo Chief Financial Officer Howard Atkins said, "Over the last decade Wells Fargo maintained capital ratios above peer levels, one of the main reasons we have been able to continue to profitably grow our company - including three consecutive quarters of record profits this year - despite the credit crisis of the last two years."
"Excluding the impact of TARP funds, stockholders' equity at Sept. 30, 2009 was up $50 billion from a year ago and including today's announced capital actions, $63 billion on a pro forma basis," Atkins added.
Separately, global financial services provider Citigroup, Inc. (C) said it reached an agreement with the U.S. government regulators to repay part of the bail-out funds it received under the TARP, Capital Purchase Program in October 2008, through combination of stock and debt offerings. Citi plans to redeem $20 billion of TARP trust preferred securities from the total of $45 billion, after the successful completion of a $17 billion common stock offering and a $3.5 billion offering of tangible equity units, both of which Citi will issue immediately.
On December 9, Bank of America Corp. (BAC) announced that it repaid the U.S. Treasury $45 billion of the government investment in the company as part of the TARP, pursuant to the closing of its securities offering. The company previously commenced an offer to sell 1.286 billion common equivalent securities at $15.00 per common equivalent security that generated gross proceeds of around $19.29 billion.
Earlier in June 2009, major American banks including Morgan Stanley (MS), JPMorgan Chase & Co. (JPM), Goldman Sachs Group, Inc. (GS), U.S. Bancorp (USB) and BB&T Corp. (BBT), repaid the capital received as bail-out funds under the TARP.
There were lot of restrictions on the banks for repaying the TARP fund with the government insisting on stress test clearance to ensure the banks stand-up to any further deterioration in the economy. The tests found that if the recession were to worsen, losses at the nineteen banks during 2009 and 2010 could total $600 billion. The banks involved in the exercise account for two-thirds of the assets and more than half the loans in the U.S. banking system.
The banks which had cleared the stress test raised funds in order to quickly pay back the TARP bail-out funds. One of the major reasons for banks wanted to quickly repay the money was to be free of restrictions enforced by the government.
With the repayment of TARP funds, banks would be able to function independently and without government scrutiny, as well as devoid of any restrictions on bonus payments and salaries to executives. Financial institutions that received funds under TARP had also reported client concerns of being under the government's thumb.
Monday, WFC closed at $25.49, up $0.08 or 0.31%, on a volume of 43.54 million shares on the NYSE. In the after hours after the announcement on TARP funds repayment, WFC shares rose $0.56 or 2.20%, to trade at $26.10.
C closed at $3.70, down $0.25 or 6.33%, on a volume of 834.31 million shares on the NYSE.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.