TARP Payback

The banks that got the green light to pay back their Troubled Asset Relief Program funds aren't wasting time returning money to the government.

Capital One Financial (COF, news, msgs) late Wednesday confirmed that it paid back the $3.75 billion it received last fall amid the financial market turmoil. JPMorgan Chase (JPM, news, msgs) repaid $25 billion, and Goldman Sachs (GS, news, msgs) and Morgan Stanley (MS, news, msgs) each paid back $10 billion.

BB&T (BBT, news, msgs) said it paid back $3.1 billion in loans it received from the government. The bank now has "a singular focus on the business of serving clients," Chief Executive Officer Kelly King said in a statement.

American Express (AXP, news, msgs) returned $3.4 billion, U.S. Bancorp (USB, news, msgs) paid back $6.6 billion, State Street (STT, news, msgs) refunded $2 billion, Bank of New York Mellon (BK, news, msgs) gave back $3 billion, and Northern Trust (NTRS, news, msgs) paid back $1.6 billion.

"Over the long term . . . this is a very promising sign that things are getting back to normal," Uri Landesman, of ING Investment Management, told The Wall Street Journal.

Combined, the 10 banks are repaying $68 billion in TARP funds less than nine months after the Treasury Department introduced the $700 billion fund.

But the banks still have to deal with the warrants the government holds -- the banks want to buy them back. The warrants had given the Treasury the right to buy common stock in the banks for up to 10 years, in the hopes that they could benefit from a rebound in their stock prices.

Earlier this month, Treasury said that banks can buy back the warrants at "fair market value"; an announcement on how they will be priced is expected Friday.

Citigroup (C, news, msgs) and Bank of America (BAC, news, msgs), which each received $45 billion in government loans, have not yet received Treasury's clearance to pay their funds back.

The bankruptcy of General Motors

General Motors (GM $0.60) filed for bankruptcy this morning and is the third-largest in US history and the largest-ever US manufacturing failure, according to Reuters. GM will receive an additional $30 billion in taxpayer funds to aid the restructuring of the 100-year-old automaker and the government plans to convert most of its $50 billion in loans to assume a 60% stake in the company. GM will be put through a "fast-track bankruptcy," which is expected to result in a new company in about 60 to 90 days. The Canadian government will contribute $9.5 billion in aid in exchange for a 12.5% stake in the automaker. GM plans to close 11 facilities and idle another 3 plants. President Barack Obama is set to speak on the announcement at 12 p.m. ET.

Following the bankruptcy of GM, two of the "big three" automakers will be in court-ordered restructuring and yesterday a bankruptcy judge approved the sale of nearly all of the US assets of privately-held Chrysler to a group led by Italian automaker Fiat (FIATY $11).

In related news, General Motors and Citigroup (C $4) have been removed from the Dow Jones Industrial Average and will be replaced with insurer Travelers Companies (TRV $42) and tech bellwether Cisco Systems (CSCO $19). Shares of TRV and CSCO are nicely higher. Additionally, the New York Stock Exchange said trading in GM shares will be suspended prior to the opening of trading tomorrow.

[Charles Schwab Midday Market View, 6/1/09]