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Goldman Sachs, JPMorgan, Morgan Stanley reportedly apply to repay TARP funds - Update

Monday, according to reports, financial service providers Goldman Sachs Group, Inc. (GS), JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) have filed to repay the bail-out funds received by them under the government's Troubled Asset Relief Program or TARP Capital Purchase Program in October. The three companies together have received a total of about $45 billion under the program. American Express Co. (AXP), that received $3.4 billion, is also said to have filed for returning TARP funds last week.

The TARP was set up last year to prop up the U.S. financial system after big bets on mortgage-related assets pushed many institutions toward collapse. Following the collapse of Lehman Brothers Holdings Inc. (LEHMQ.PK) and several other events that rocked the financial sector last year, Goldman Sachs and the other surviving brokerage giant Morgan Stanley (MS) became bank holding companies in September, providing them with access to the federal government's $700 billion rescue plan.

Goldman Sachs and Morgan Stanley were among the first banks to receive funds as part of the $700 billion government bailout under the Treasury's TARP Capital Purchase Program. The companies received $10 billion each in fresh capital from the government in return for preferred stock and warrants to purchase common shares. JPMorgan also received $25 billion in federal capital from TARP to shore up its balance sheet.

Early this month, Morgan Stanley raised $7.5 billion in stock and bond sale to address a capital shortfall of $1.8 billion following the government stress tests, and to repay $10 billion in federal government loans. This includes a public offering of $4 billion in bonds, which are not guaranteed by the U.S. Federal Deposit Insurance Corp., or FDIC.

Earlier this month, American Express also sold $3.0 billion of non-guaranteed senior debt, comprising $1.25 billion of 7.25% five-year notes and $1.75 billion of 8.125% 10-year notes.

U.S. banks have been racing to sell non-FDIC-guaranteed debt because regulators have said that selling debt with a five-year term or greater was a key condition of being permitted to repay funds received under the Treasury's TARP Capital Purchase Program. By repaying TARP funds, banks will be able to function independently and without any unnecessary restrictions on bonus payments and salaries to executives.

In April, Goldman Sachs raised about $5 billion through a public offering. The proceeds from the offering plus additional resources was targeted to enable the company to repay $10 billion of tax-payers money the company received as bail-out fund.

Goldman Sachs, JPMorgan, Morgan Stanley, and American Express were among the nineteen banks that underwent the government stress tests. Of the nineteen banks tested, authorities said nine banks, including Goldman Sachs, JPMorgan and American Express passed the government's "stress test," and did not need to raise any more capital. The other banks that are not required to raise capital are U.S. Bancorp (USB), Bank of New York Mellon Corp. (BK), MetLife Inc. (MET), State Street Corp. (STT), BB&T Corp. (BBT), and Capital One Financial (COF). But, Morgan Stanley was asked to address a capital shortfall of $1.8 billion following the government stress tests.

However, the banks that have passed the stress test are raising funds in order the quickly pay back the TARP bail-out funds. One of the biggest reasons for the banks to quickly repay the money is to free it from restrictions placed on it by the government. By repaying TARP funds, banks will be able to function independently and without government scrutiny as well as any unnecessary restrictions on bonus payments and salaries to executives. Further, the banks have reportedly received concerns from clients about being under the government's thumb.

Pursuant to the completion of the stress assessment, if permitted by supervisors and if supported by the results of the stress assessment, the banks had said it would like to use the capital raised plus additional resources to repay the tax-payers money it received from the U.S. government under the TARP Capital Purchase Program.

GS closed Monday's regular trading session at $143.15, up $8.75 or 6.51% on a volume of 18.62 million shares, lower than the three-month average volume of 26.61 million shares.

MS closed at $28.28, up $2.15 or 8.23% on a volume of 35.99 million shares, lower than the three-month average volume of 51.90 million shares.

JPM closed at $37.26, up $2.35 or 6.73% on a volume of 71.73 million shares, lower than the three-month average volume of 109.42 million shares.

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