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By Don Miller
Morgan Stanley (NYSE: MS), J.P. Morgan Chase & Co. (NYSE: JPM) and American Express Co. (NYSE:AXP) unexpectedly announced plans to raise at least $7.7 billion in new capital after the U.S. Federal Reserve imposed new rules requiring large banks to prove they can raise capital in the public equity markets before they exit the government's Troubled Asset Relief Program (TARP).
Even though they were among the 19 banks found to have no need for further capital requirements under recently-conducted government stress tests, under the new rules the three giant financial firms need to raise the funds before they are allowed to repay some of the hundreds of billions of dollars they received under TARP.
The situation further aggravated large bank-holding companies that were already chafing under government control after receiving taxpayer funds from TARP to weather the financial crisis. Some bank executives made it plain they can't wait to repay the funds and leave conditions imposed by government legislature behind.
JPMorgan Chief Executive Officer Jaime Dimon, who said his company didn't need the bailout money in the first place, went so far as to read a mock letter to U.S. Treasury Secretary Timothy Geithner at the 31st Annual NYU International Hospitality Industry Investment Conference, according to Bloomberg News.
"Dear Timmy, we are happy to be able to pay back the $25 billion you lent us," Dimon said. "We hope you enjoyed the experience as much as we did."
Dimon had previously called the TARP money "a scarlet letter," and in April, referred ti it as "the TARP baby."
The new rules were aimed specifically at the 19 large bank-holding companies subjected to the stress tests, and may raise the capital-requirement bar higher for them than for smaller banks.
"This is just making it more costly to leave TARP, which may discourage some of the lesser players from stretching to try to leave TARP," Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York told Bloomberg.
The government is saying "we need to make sure that in a dynamic world you can continue to raise capital," he said.
After the Fed announced the new rules the three firms hurried to raise money from the private sector.
JPMorgan, the second-largest U.S. bank, will sell $5 billion in common stock. Morgan Stanley, the sixth-largest, yesterday (Tuesday) sold $2.2 billion in common stock, and American Express, the top U.S. credit-card company, sold $500 million.
All three had previously announced plans to repay TARP without raising additional capital.
On June 8, the Federal Reserve will identify which of the 19 lenders to undergo the government stress test will be allowed to repay their loans.
Goldman Sachs Group Inc. (NYSE: GS) had previously joined JPMorgan and Morgan Stanley in applying to repay a total of $45 billion in TARP funds, in order to reimburse taxpayers for part of the $700 billion bank bailout program.
For his part, Dimon made it clear in a Monday conference call that he is perplexed by the government's new requirements and anxious to leave the TARP program as soon as possible.
"We believe we've met all the terms to get out of TARP," he said in response to an analyst's question. "If we don't get out of TARP, we would be very surprised. We don't think we should be surprised."
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