The deficit for the current fiscal year just shrunk by $3.5 billion. Regions Financial, the Birmingham, Ala.-based bank that was one of the largest recipients of TARP funds, this week bought back the preferred shares it sold Treasury in November 2008 for the full face value of $3.5 billion.
Many of the largest banks repaid their TARP funds with alacrity, with giants like J.P. Morgan and Morgan Stanley returning capital in the summer of 2009. As the banking sector recovered, Regions remained a laggard. Until yesterday it represented the largest single sum yet to be repaid.
The bank has been nursing its crisis-era wounds for several quarters. Here's a chart of its stock. Earnings have rebounded. But in March it took a few actions to raise capital. On March 14, it raised $900 million by selling common stock to the public. And on April 2 it completed the sale of its Morgan Keegan investment banking unit for $1.2 billion to Raymond James. Those actions, combined with its own cash, enabled it to present a $3.5 billion check to Treasury.
The purchase retires the preferred shares, on which Regions paid five percent annual interest rate. Doing so will save the company $175 million per year on interest. Regions notes that over the past years it paid $593 million in dividends to Treasury. That represents a 17 percent return on the "investment" Treasury made in Regions and further increases the positive returns that the Capital Purchase Program is reporting.
But the account isn't entirely closed. When Treasury bought preferred shares in banks as part of the Capital Purchase Program, it also received warrants. Treasury still owns the warrants and will likely sell them at some point this year. Judging by past experience, that could bring in another $200-$300 million.
Regions was the last remain multi-billion dollar TARP recipient to pay back its funds. Synovus Financial, which owes $967 million, now bears the unwanted status of the largest remaining institution in the Capital Purchase Program.
Daniel Gross is economics editor at Yahoo! Finance
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- Morgan Stanley