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Bailout repayments could start in June

Morgan Stanley headquarters are pictured April 21 in New York. Morgan Stanley is rumored to be one of the banks ready to pay back bailout money it borrowed from the federal government.  AP Photo by Mark Lennihan

Morgan Stanley headquarters are pictured April 21 in New York. Morgan Stanley is rumored to be one of the banks ready to pay back bailout money it borrowed from the federal government. AP Photo by Mark Lennihan

Martin Crutsinger
AP Economics Writer

Washington (AP) — The Federal Reserve said Tuesday that approval for big banks seeking to repay bailout money could start in early June.

A Fed official said several of the country’s 19 largest banks that participated in the recent stress tests are interested in repaying the money they received from the government’s $700 billion pool of bailout money.

The official said the Fed, which supervises the largest banks, had requested additional information from the banks needed to support the repayment requests. This official, who spoke on condition of anonymity because the applications are still being reviewed, said the earliest that announcements could be made would be the week of June 8.

Under the rules governing the operation of the pool of bailout money, banks that receive assistance can make repayments as long as they prove to their primary regulator that repaying the capital injections will not jeopardize their safety and soundness. The banks also must show they can replace the money by raising capital without guarantees from the Federal Deposit Insurance Corp.

The Fed’s decision would go to the Treasury Department for final approval to return the money. Treasury supervises the bailout money.

The official did not name any of the institutions that have made requests to repay their rescue funds. However, other people familiar with the situation said Goldman Sachs Group Inc. and Morgan Stanley have formally asked the Fed for permission to repay a combined $20 billion in federal bailout money.

The 10 banks that were found to need more capital after the stress tests, including Citigroup Inc. and Bank of America Corp., have until June 8 to develop such a plan and have it approved by regulators.

A major issue that needs to be resolved along with the repayments is paying the government for warrants it received as part of the initial loans to banks in the form preferred stock purchases. Those warrants gave the government the option to buy stock at a set price over a period of 10 years.

But now that banks want to return the bailout money, the government and the banks will have to settle the issue of how much the stock warrants are worth.

Treasury spokesman Andrew Williams said the department would have a “robust process” for valuing the warrants, but he did not provide details on how that would work.

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