WALL Street’s major players revealed the full price of buying their way out of the US government bailout scheme yesterday.
Bank of America joined Citigroup to see its bottom line pummeled after paying a hefty penalty to escape the $700bn state Troubled Asset Relief Programme (Tarp) in the fourth quarter. Morgan Stanley, JPMorgan, Goldman Sachs and State Street were all hit earlier in the year for escaping the punitive terms imposed as a condition of insurance by the taxpayer.
The news came as Morgan Stanley announced a bumper remuneration pool of $14.4bn, up from $11bn in 2008. Including Goldman, Citigroup and JPMorgan the big beasts will pay out over $70bn in salary and bonuses.
Bank of America, which has suffered due to heavy credit write-downs from its consumer-facing businesses, yesterday said a fourth quarter loss of $194m turned into a deficit of $5.2bn after it paid out $4bn in Tarp break fees. For the full year Bank of America lost $2.2bn, including Tarp charges.
Chief executive Brian Moynihan said it was “disappointing” to remain in negative territory in the fourth quarter. However, he ranked repaying the bailout funds “with interest” as a significant accomplishment in 2009.
Citigroup was hardest hit during the financial crisis, needing $45bn of government aid. It said it sustained a $6.2bn loss on Tuesday as it paid its way out of Tarp in the fourth quarter.
Morgan Stanley, JPMorgan and Goldman Sachs stumped up $1.2bn apiece to quit Tarp over the summer.
As soon as markets showed signs of life at the start of 2009, the US banking titans were desperate to wrestle free of Tarp’s constraints. Aside from stigma, the scheme attached draconian rules on pay and transparency.
Former JPMorgan dealmaker and Brookings Institution fellow Doug Elliott said: “When the large, strong banks realised the extent of the limitations they were frankly appalled. They were frantic to get out.”