Four Major Financial Institutions Sell Stock In Preparation for TARP Exit

Four large financial institutions are moving swiftly to repay bailout money by raising capital through a series of stock sales.

JPMorgan Chase & Co., Morgan Stanley, KeyCorp and American Express Co. all announced sales of common stock in order to meet capitalization requirements laid out in new Federal Reserve Board criteria for banks seeking to exit the Troubled Asset Relief Program.

Morgan Stanley said it raised $2.2 billion in stock sales on Tuesday, while JPMorgan managed to raise $5 billion. American Express sold $500 million in stock this week, and KeyCorp took home $1 billion in additional cash.

The decision to sell additional stock followed an announcement by the Federal Reserve Board that the 19 largest financial institutions in the bailout program would be subject to special rules for repaying the money they received.

According to the Federal Reserve, large banks seeking to redeem the shares they sold the government must prove they are adequately capitalized without bailout assistance and can borrow money on the open market without federal loan guarantees. The stock sales are intended to help companies meet these requirements.

In addition, the new criteria require the financial institutions to show they will continue normal lending activities, maintain funding obligations to counterparties, and support subsidiary institutions.

Since the bailout program began, an increasing number of financial institutions have sought to escape it, citing regulatory restrictions on executive pay and dividends, as well as broad public relations concerns about appearing to need government aid to survive.

None of the companies selling stock this week has been officially approved to redeem shares held by the government. But all passed the Federal Reserve Board’s recent stress tests. Executives at JP Morgan and Morgan Stanley have said they expect to be out of the TARP program by the end of the month. The Treasury said it would rule on their applications next week.

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