Bank of America to pay $713 million in TARP Preferred Dividends (Bloomberg)

[A HERETIC I AM]

Bank of America to Pay $713 Million in TARP Preferred Dividends

PR Newswire

CHARLOTTE, N.C., April 3

CHARLOTTE, N.C., April 3 /PRNewswire/ -- Bank of America Corporation today
said the Board of Directors has authorized approximately $713 million in
dividend payments to the U.S. government under the Troubled Asset Relief
Program (TARP).

As previously announced, Bank of America paid its first dividends totaling
$402 million to the U.S. Department of the Treasury in February,
reflecting the company's ongoing commitment to pay back taxpayers as
quickly as possible.

Dividends related to the government's investment in the company under TARP
include the following:

The cash dividend of $312.50 per share, or a total of approximately $188
million, on the Fixed Rate Cumulative Perpetual Preferred Stock, Series N,
is payable on May 15, 2009 to the Treasury Department, the shareholder of
record as of April 30, 2009. This quarterly dividend payment relates to
the government's $15 billion investment in Bank of America made under the
Capital Purchase Program of TARP.

The cash dividend of $312.50 per share, or a total of approximately $125
million, on the Fixed Rate Cumulative Perpetual Preferred Stock, Series Q,
is payable on May 15, 2009 to the shareholder of record, the Treasury
Department, as of April 30, 2009. This quarterly dividend payment relates
to the government's $10 billion investment in Merrill Lynch & Co., Inc.
made under the Capital Purchase Program of TARP.

The cash dividend of $500 per share, or a total of approximately $400
million, on the Fixed Rate Cumulative Perpetual Preferred Stock, Series R,
is payable on May 15, 2009 to the shareholder of record, the Treasury
Department, as of April 30, 2009. This quarterly dividend payment relates
to the government's $20 billion investment in Bank of America on January
16, 2009 under TARP.(snip)

More;

From Bloomberg.

[Skink]

1. Since when did the Government buy preffered shares?

[A HERETIC I AM]

2. That's what the T.A.R.P. program was all about.

http://en.wikipedia.org/wiki/TARP

[lyonn]

3. Sounds like the govt. did something right back in Oct.?

As I recall Obama the Dems were insisting on some protections for the people during the lead-up to the vote.

[A HERETIC I AM]

4. The idea that the government just simply wrote checks to these institutions is false..

and it seems to be an idea widely held on this message board. They DID get something for the money, in this case, Preferred shares that pay quarterly dividends.

[Skink]

5. The noise machine must have done a good job hiding the fact that we got preffered stock.

[amandabeech]

7. That won't be known until all dividends and interest are paid, and the TARP beneficiaries

buy out the government at face.

Until then, no one knows whether these investment will pay off.

[notesdev]

15. Nope

$713 million is a drop in the bucket compared to the thousand times that figure that was put at risk (i.e. put up to be stolen) with TARP. This is a 0.1% return, you could buy straight Treasuries and do many, many times as well. Even assuming that ALL recipients pony up some cash on this scale, we're still looking at less than 1% return. For comparison's sake, the 10-year bond rate is presently 2.9%. Hell, we could do better with the money by simply putting it in a savings account.

We're getting ripped off... again.

[HamdenRice]

16. It is not .1% return. It's 5% rising to 9% so it's not a "drop in the bucket"

In fact, because the rate at which the Treasury is borrowing is about half of what TARP preferred is paying, the Treasury constantly makes money on interest rate arbitrage.

The amount that the preferred paid in the OP is a quarterly dividend. (You have to multiply by 4 to get the annual dividend rate.) Moreover, if the preferred fails to pay the full amount of the dividend, the dividend accumulates "in arrears," and the bank must pay compound interest -- dividends on the missed dividends.

At the end of five years, the dividend rises to 9%, which will give the banks extra incentive to pay the entire face value amount of the preferred back.

Assuming, for example, all the banks keep the TARP money for five years and then redeem the preferred stock, the Treasury will have made about 25% on its investment or a total of about $87.5 billion on the $350 billion first round of TARP investments, with the total payments by recipients to the Treasury in dividends and principal of $437.5 billion. It's more likely though that the TARP recipients will redeem the preferred at face value (plus any missed dividends) long before then.

Unless the TARP banks fail, the Treasury is pretty much guaranteed to get all the TARP money back with considerable interest.

[notesdev]

17. There's the catch

"unless the TARP banks fail"

These banks are already insolvent. Not a one is being truthful about its balance sheet. If anyone knows how deep the losses really are, it's being kept behind closed doors. The institutions that want TARP have already failed.

This premise formed the basic theory behind Paulson's 'take it or take it' offer when he marched the CEOs of our largest banks into a room and demanded that each and every one take the money. This fascist act was designed to hide the truth of which banks were in good shape and which ones weren't.

With the vehicles that regulators inexplicably permit (level 3 assets, "off balance sheet" tricks, etc.), there is no limit to how deep the losses for any of these institutions may be. Taxpayers are exposed to potential 100% losses in these cases - which will of course balloon to more, since once so much has been committed, no one will want to turn around and admit that it is a total failure.

All TARP is doing is permitting the financial industry to continue living a lavish lifestyle and to allow a horde of financial frauds to cash in once again, this time courtesy of the taxpayer - an unwilling victim, unlike the more participatory shareholders and bondholders.

Speaking of the bondholders, it is clear that there is a deliberate protect-bondholders-at-all-costs strategy that is being pursued. They are being made whole even at the expense of non-participants.

We the people are not being told the truth about the purpose of these programs. Both the insolvent banks and the politicians they own are engaged in what Rep. Brad Sherman calls "Kabuki Theater" ( http://www.youtube.com/v/YXSRMWYOSkM&hl=en&fs=1 ). We the people are being lied to and stolen from.

[HamdenRice]

13. Jesus, Mary and Joseph -- some of us have been writing about preferred stock for months

It's astounding and frustrating that so many people still think the banks just got money.

They got preferred stock with a mandatory dividend. Unlike common stock, the preferred stock has a fixed face value as well, and under the terms of TARP, the entire amount has to be paid back or else the dividend increases steeply.

As Barney Frank still says, the government WILL MAKE MONEY on TARP if the banks recover.

[girl gone mad]

6. Loans are still going bad faster than the banks are making money..

So where did they come up with the cash?

http://zerohedge.blogspot.com/2009/04/why-despite-fasbs-efforts-to-opposite.html

Borrowed it from the Fed?

http://www.blnz.com/news/2009/02/19/Banks_investment_firms_borrow_more_1171.html

[marketcrazy1]

8. we gave them

45 billion plus what they got from AIG and they are paying back 713 million as agreed under the terms of the loan(s). who believes we will not give them more money in the coming months.............. look on the bright side, I guess it means they have not blown the whole 45 billion....... YET!!!!

[A HERETIC I AM]

9. You do realize the article from the BLNZ site is 43 days old, right?

I trust you read it as it discusses SHORT TERM paper, (as in usually overnight) not long term loans, so its relevance to the article I posted is zero.

Your first link is from a blogger who has taken the nom de plume of "Tyler Durden", a character from the movie "Fight Club". I find it fascinating that the description of Tyler Durden on Wikipedia says the following;

Tyler Durden

A nihilist, neo-Luddite, radical environmentalist and anarcho-primitivist with a strong hatred for consumer culture. "Because of his nature," Tyler works night jobs where he causes problems for the companies; he also makes soap to supplement his income and create the ingredients for his bomb making which will be put to work later with his fight club. He is the co-founder of fight club (it was his idea to have the fight that led to it). He later launches Project Mayhem, from which he and the members make various attacks on consumerism. Tyler is blonde, as by the narrator's comment "in his everything-blonde way". He frequently describes (and acts on) his opposition to mass society, materialism, property, capitalism, and almost all technology and social order, indeed he vows to annihilate civilization itself. He describes his ideal world as a neo-paleolithic paradise, in post-apocalyptic urban ruins. The unhinged but magnetic Tyler could also be considered an antihero (especially since he and the narrator are technically the same person), although he becomes the antagonist of the novel later in the story. Few characters like Tyler have appeared in later novels by Palahniuk, though the character of Oyster from Lullaby shares many similarities.

Yanno...that's really just too funny. Particularly when it is contrasted with the idea of some anonymous blogger being put up as a serious rebuttal to a news item about a regular, run-of-the-mill dividend payment on a preferred security. Your "Tyler Durden" is a dipshit, I'm sorry to say.

Sorry, but someone who hides behind such a pen name and offers no reasonable credentials is not someone I take seriously.

Now....before you decide to bust my chops again about "attacking the messenger" like you did in this post in this thread, remember that I just don't give a fuck if you are offended because you choose to occasionally post bogus or questionable citations or outdated and irrelevant articles by people with dubious if not non-existent financial credentials.

For the record, I don't run a blog, I've studied economics informally (meaning I do not have a degree) and as a result, I don't publicly present myself as some sort of financial professional. When I make a post, I do my utmost to make sure my facts are correct and if they're pointed out to be incorrect, I admit my mistake. If I quote an article, I do my best to make sure the author knows what he is talking about and/or has more financial bona fides than a degree in Theater, like a favorite of this forum, Mr. James Howard Kunstler.

You seem to have been posting an awful lot lately. That's fine. Go for it. But attempting to rebut a simple press release with quotes from outdated or irrelevant articles or from blogs written by people with less business providing an opinion on financial issues than I have, does nothing to further the understanding of readers.

[girl gone mad]

10. Until and unless we see BOA's balance sheet, this press release is meaningless.

That's the bottom line.

I know that the borrowing is to pay off "short-term" debts (Not "usually overnight". Up to 270 days, though the term can be longer. The overnight loans actually weren't as problematic for the banks as the stuff with longer maturity) and I also understand how it can be used to manipulate the balance sheets.

Where did the money come from? I think that's a straightforward enough question. It doesn't really take credentials and bona fides to understand why that's relevant, does it?

Tyler is a pretty well respected blogger. The statistics in his post are facts, not opinions. Many of the people who wrecked our economy have prestigious degrees and perfect credentials, but they were dead wrong about this crisis. Tyler's earned his reputation by being frequently right with his market calls and by scooping mainstream financial reporters.

I'm not offended, I just think that you fail to make a good case for your point of view, and too often you fall back on lazy tactics rather than putting in real effort to find answers. Sometimes when you take the time to think things through instead of simply accepting press releases at face value, you reach different conclusions.

This was the relevant part of the blnz report, btw.

Squeezed banks and investment firms are borrowing from the Fed because they can't get money elsewhere. Investors have cut them off and shifted their money into safer Treasury securities. Financial institutions are hoarding whatever cash they have, rather than lending it to each other or customers. The lockup in lending has contributed to the recession, now in its second year.

Investment houses last March were given similar emergency-loan privileges as commercial banks after a run on Bear Stearns pushed what was the nation's fifth-largest investment bank to the brink of bankruptcy and into a takeover by JPMorgan Chase.

The identities of commercial banks and investment houses that borrow from the Fed program are not released. They now pay just 0.50 percent in interest for the emergency loans.

Critics worry the Fed's actions have put billions of taxpayers' dollars at risk.

As of March 26, Fed CP lending levels were down slightly, but still comparable.

[A HERETIC I AM]

12. I was wrong about the "usually overnight" reference. My apologies.

I was thinking of another Fed program.

Time for bed. (I'm "lazy", after all)

Have a pleasant tomorrow.

[On the Road]

18. Balance Sheets are Public Information

at any time there are dozens of analysts from pension funds and brokers poring over BoA's filings.

Here's a summary form:

http://finance.yahoo.com/q/bs?s=bac&annual

A more complete version is available with the annual report. Corporations provide additional data on investor calls.

It is, of course, possible in some cases for companies to hide things off-balance sheet, but you had broached the subject. Most of the fuzzy area has to do with the value of some of their assets, which in turn depend on future real estate prices and foreclosure statistics.

[girl gone mad]

19. But that's just the thing..

nobody really knows what's on Bank of America's balance sheet.

The stress tests are supposed to give us some indication of how these assets will perform, but the stress tests are http://www.nakedcapitalism.com/2009/02/bank-stress-testing-less-than-meets-eye.html?showComment=1234802280000">inadequate and the economic scenarios being applied http://www.calculatedriskblog.com/2009/03/stress-test-quarterly-forecasts-for.html">don't appear stressful enough.

[On the Road]

21. Everybody Knows the Balance Sheet

But due to the kind of assets in question, the lack of a publicly traded exchange for them, and the mark-to-market rule, they don't know whether to agree with the value assigned or not. Neither does Bank of America. And the answer depends enormously on whether the value is short-term, long-term, and on what basis. And depending on the answer, Bank of America is either insolvent or doing just fine.

[girl gone mad]

22. I find this line of reasoning a bit silly.

I would still argue that Bank of America's real balance sheet is an unknown. I don't think anyone actually knows what the damage is, and it doesn't look like anyone is in too much of a hurry to find out.

From http://news.yahoo.com/s/mcclatchy/20090309/pl_mcclatchy/3184724/print">McClatchy:

WASHINGTON — Five of America's largest banks, most of which have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

Citibank, Bank of America , HSBC Bank USA , Wells Fargo Bank and J.P. Morgan Chase reported that their "current" net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31 . Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.

The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.

The banks' potentially huge losses, which could be contained if the economy quickly recovers, also shed new light on the hurdles that President Barack Obama's economic team must overcome to save institutions it deems too big to fail.

While the potential loss totals include risks reported by Wachovia Bank , which Wells Fargo agreed to acquire in October, they don't reflect another Pandora's Box: the impact of Bank of America's Jan. 1 acquisition of tottering investment bank Merrill Lynch , a major derivatives dealer.

Federal regulators portray the potential loss figures as worst-case. However, the risks of these off-balance sheet investments, once thought minimal, have risen sharply as the U.S. has fallen into the steepest economic downturn since World War II, and the big banks' share prices have plummeted to unimaginable lows.

With 12.5 million Americans unemployed and consumer spending in a freefall, fears are rising that a spate of corporate bankruptcies could deliver a new, crippling blow to major banks. Because of the trading in derivatives, corporate bankruptcies could cause a chain reaction that deprives the banks of hundreds of billions of dollars in insurance they bought on risky debt or forces them to shell out huge sums to cover debt they guaranteed.

The biggest concerns are the banks' holdings of contracts known as credit-default swaps, which can provide insurance against defaults on loans such as subprime mortgages or guarantee actual payments for borrowers who walk away from their debts.

The banks' credit-default swap holdings, with face values in the trillions of dollars, are "a ticking time bomb, and how bad it gets is going to depend on how bad the economy gets," said Christopher Whalen , a managing director of Institutional Risk Analytics, a company that grades banks on their degree of loss risk from complex investments.

[On the Road]

27. I Understand What You're Saying

Not trying to give you grief.

There just seems to be a a widespread perception here that all the company financial are some kind of secret black hole. A lot of that is due to simple ignorance of the extensive material that's out there. You obviously know better.

It is certainly true that companies frequently try to hide bad news and occasionally cheat on their financials (eg, MCI). As Cramer said: "HOW can this level of fiction EXIST after SARBANES-OXLEY?" It's particularly widespread in the financial sector because the value of so many of the assets is open to debate and governed by soft rules.

The valuation of loan portfolios leaves enormous leeway for judgment, although there's really no getting around a lot of that. Another is off-balance-sheet transactions, which really need greater controls.

Problem is, the financial industry is already heavily regulated and it's difficult to see exactly what regulatory regimen would result in a full, detailed, and accurate view of corporate financials.

One option is not tighter regulations, but greater transparency. The more I think about this Wired article, the more I think the idea has merit:

Road Map for Financial Recovery: Radical Transparency Now!
Charlie Hoffman says his XBRL markup language can make financial reporting "elegant and simple."

...That's why it's not enough to simply give the SEC—or any of its sister regulators—more authority; we need to rethink our entire philosophy of regulation. Instead of assigning oversight responsibility to a finite group of bureaucrats, we should enable every investor to act as a citizen-regulator. We should tap into the massive parallel processing power of people around the world by giving everyone the tools to track, analyze, and publicize financial machinations. The result would be a wave of decentralized innovation that can keep pace with Wall Street and allow the market to regulate itself—naturally punishing companies and investments that don't measure up—more efficiently than the regulators ever could.

...If the financial markets were as open as LendingClub, they would reap similar benefits; the combined efforts and innovation of all investors would make the system as a whole more secure. Tim Bray, an inventor of XML who has been an advocate for XBRL reporting standards, points to political blogger Nate Silver as a helpful model of a citizen-analyst....

Financial data, says Bray, now director of Web technologies at Sun Microsystems, should draw in the same kind of passionate people who had previously been passive investors. "People care about money," he says. "There's money in money and substantial personal upside to someone who can mine the data and uncover the truth."

The revolution will be powered by data, which should be unshackled from the pages of regulatory filings and made more flexible and useful. We must require public companies and all financial firms to report more granular data online—and in real time, not just quarterly—uniformly tagged and exportable into any spreadsheet, database, widget, or Web page. The era of sunlight has to give way to the era of pixelization; only when we give everyone the tools to see each point of data will the picture become clear. Just as epidemiologists crunch massive data sets to predict disease outbreaks, so will investors parse the trove of publicly available financial information to foresee the next economic disasters and opportunities....

Better data and controls are not a quixotic quest or a pipe dream. A lot of rich people and businesses have gotten burned very badly. There will be resistance, of course, but also a ton of corporate support for the right plan.

[notesdev]

23. The balance sheet is steer droppings

and everybody knows it. As long as companies are allowed to put stuff off their balance sheet and mark to bubble and other tricks, they can make the official bottom line any figure they please, while hiding potentially limitless debt. Balance sheets these days are just another vehicle for fraud.

[Hannah Bell]

24. TD is one of the contributors at Naked Capitalism, which is run by this guy:

Yves Smith
Industry: Investment Banking
Occupation: Management Consultant/Corporate Finance Advisor
Location: New York City : NY : United States
About Me
Although I believe ideas should stand on their own merit, rather than on their author's credentials, I also recognize that readers want some assurance that they are not quoting a 13 year old or a dog. I have undergraduate and graduate degrees from Harvard. I have been working in and around the financial services industry since 1980 and have had over 40 articles published in venues such as The New York Times, Institutional Investor, The Daily Deal, U.S. Banker, Bank Mergers & Acquisitions, The Conference Board Magazine, BRW Magazine (Australia), and Boss Magazine (Australian Financial Review).

http://www.blogger.com/profile/03506020285476330865

All his guests are in the financial industry. TD is reputedly a hedge fund guy. His blog is "Zero Hedge".

[girl gone mad]

25. Thanks Hannah.

Yves is a woman, btw. She's tough as nails, though.. maybe that's why some people assume she's male.

[girl gone mad]

11. A little more information..

From the http://online.wsj.com/article/SB123878313847887307.html">Wall Street Journal:

The bank received an initial $15 billion under TARP's Capital Purchase Program last fall as the Treasury made investments in the nine largest U.S. banks in an effort to unfreeze credit markets. The government later provided $30 billion more related to the bank's acquisition of Merrill Lynch.

Some banks, such as the small New Jersey institution Sun Bancorp Inc., recently returned all their TARP money, saying changing rules made keeping the money a burden rather than a boon. Since the middle of March, at least five banks have said they either will not accept TARP funds or they will return the funds received with interest due to Uncle Sam.

There is concern that regulators might not want banks to repay their government investments too quickly because of the uncertain economic environment. Repaying might also cause questions about the condition of those banks that delay paying the government back.

Looking to shore up its balance sheet, Bank of America has slashed its dividend twice since October. The bank has the lowest tangible common equity ratio of any large bank, at 2.54%. Its earnings are vulnerable to rising unemployment as well as troubles in the commercial real-estate market.

Nonetheless, it expects to take in "close to $50 billion in pretax, pre-provision earnings" this year -- that is before subtracting losses from bad loans -- which means the bank should quickly recover once the economy bottoms.

Moody's recently lowered its credit ratings on Bank of America, citing, among other things, an increasing "probability that systemic support will be needed."

In other words, they aren't making any money and will likely need to be recapitalized yet again, according to the conservative Moody's. Of course, now that Treasury has come up with the PPIP backdoor capitalization scheme, TARP, with all of its bad PR and congressional oversight strings (however limited) must look much less appealing to BAC.

[HamdenRice]

14. Point of info -- it only slashed dividends on common, not preferred

The preferred dividend is mandatory, unlike the dividend on common. By not paying dividends on common for some time, a corporation is able to save cash and therefore restore its balance sheet.

[girl gone mad]

20. yes, but the point is that in the big picture, they aren't looking very healthy.

[Pale Blue Dot]

26. Estimated US taxpayer cost for bailout jumps

WASHINGTON, April 4 (Reuters) - U.S. congressional budget analysts have raised their estimate of the net cost to taxpayers for the government's financial rescue program to $356 billion, an increase of $167 billion from earlier estimates.

The Congressional Budget Office had originally projected the $700 billion Troubled Asset Relief Program would cost taxpayers $189 billion.

The additional cost, which applies to TARP spending for fiscal years 2009 and 2010, was included in the CBO's March projection of a $1.8 trillion deficit for fiscal 2009, which ends Sept. 30.

The TARP cost projection was raised due to changes in financial market conditions, new transactions and a shift in expected timing of payments, the CBO said.

The Treasury Department announced plans to use some of the money to help avoid home foreclosures and made new deals with Bank of America (BAC.N: Quote, Profile, Research) and American International Group (AIG.N: Quote, Profile, Research). Those programs involved higher subsidy rates than previously estimated, the report said.

http://uk.reuters.com/article/marketsNewsUS/idUKN0450240120090404

Hmmm. So even though one bank has been able to pay back about .1% of the bailout costs through preferred stock dividends, our own government is saying our eventual costs will be even higher than expected.

Keep trying to find the roses in the growing pile of dung, AHIA.