Wells Fargo has announced it is to repay $25 billion in funds it received from government under the Troubled Asset Relief Program. This makes Wells the last of the big banks to repay its TARP funds. In announcing the decision, the company CEO was quoted as saying:
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.
In order to maintain a high level of capital Wells Fargo will issue $10.4 billion in common stock to investors and conduct asset sales to raise an additional $1.35 billion. Interestingly, the announcement also contains this line:
Raise $1.35 billion through the issuance of common stock to Wells Fargo benefit plans and in lieu of a portion of 2009 incentive cash and other compensation to certain Wells Fargo team members
I assume the company is rewarding employees through the benefit plan as compensation for money lost because it ratcheted back remuneration after the ruckus over Goldman’s bonuses. My question is who is getting these benefits and how will they be paid out?
After the TARP repayment and these initiatives, the company’s estimated Tier 1 common equity ratio would be 6.2 percent, pro forma based on the September 30, 2009 ratio of 5.2 percent. Repaying TARP will eliminate $1.25 billion in annual preferred stock dividends, and will be slightly accretive to earnings per share in 2010.