Bank of America® announced late Wednesday that it plans to soon pay back the $45 billion in bailout funds it received from the government’s coffers under the Troubled Asset Relief Program (TARP). The move, in eyes of the public, could pave the way for redemption for the bank, which has suffered the stigma of being known as one of the most troubled banks to emerge out of the financial crisis last year.
As another sign that Bank of America® has indeed started to recover from the greatest financial crisis to hit the country since the 1930s, the repayment will allow the bank to say goodbye to government oversight of its executives’ pay, which it has had to contend with as a result of taking TARP funds.
Repayment May Help CEO Search
Repaying government funds could also prove to be instrumental for the bank as it looks for a new chief executive officer to replace Ken Lewis. Since Lewis revealed his plans of stepping down from the post in late September, the ensuing search for a CEO has so far proved to be futile.
This latest development is bittersweet victory of sorts for retiring CEO Lewis who has been under intense criticism for decisions made at the height of the crisis, in particular, the contentious Bank of America® – Merrill Lynch merger. Facing pressure from both shareholders and government regulators, Lewis announced he would be retiring by the end of this year.
Removal of Pay Limits
That Bank of America® had to stick to the compensation limits set by pay czar Kenneth Feinberg is one of the most crucial issues that has perhaps hampered the bank from attracting more executives willing to take on the job. Among the potential candidates that have reportedly been approached and refused the offer are Bank of New York Mellon CEO Robert Kelly and Citigroup Inc. director Michael O’Neill.
“This is huge for Bank of America®’s ability to attract a new CEO,” financial analyst at Morningstar Inc. Jaime Peters said. “No longer will they have to say we don’t know how much we can pay you unless some guy in Washington D.C. tells us.”
Making Money Again
Only a few months ago, the bank’s capability to pay off the $45 billion government debt was in question with rising delinquencies and defaults in its mortgage and credit card portfolio. However, like rival banks JP Morgan Chase and Citibank, Bank of America® is once again earning good money, largely due to Wall Street businesses like trading stocks and bonds.
The big banks’ relatively quick recovery remains in stark contrast to the overall economic recovery, where millions of Americans remain jobless. Unemployment has already entered into the double digit territory as of the third quarter of this year.