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WEDNESDAY, JUNE 3, 2009 |
THE GLOBAL EDITION OF THE NEW YORK TIMES
finance business
17
WITH
Top U.S. banks close Geithner claims gains at Beijing talks to exiting bailout plan BEIJING
NEW YORK
BY ERIC DASH
Since the U.S. government pressed billions of dollars in taxpayer support on banks in the United States, several strong institutions have been pushing to give it back. Now a few of them may get the go-ahead next week — a crucial step in disentangling themselves from Washington. If U.S. regulators approve the plans, it would pave the way for a group of large institutions, among them JPMorgan Chase, to leave the bailout program far earlier than many had envisioned. It would also signal that the bankers and regulators believed that the worst was over for these banks, even though confidence in the broader financial industry remained fragile. JPMorgan Chase said Monday that it expected to return its $25 billion taxpayer investment this month. The bank expected to raise $5 billion through the sale of common stock Tuesday to prove to regulators that it was healthy enough to obtain capital without government support. Goldman Sachs also said it aimed to repay $10 billion in bailout funds this month. Morgan Stanley also said Tuesday that it would raise $2.2 billion through a stock offering as part of a plan to satisfy preconditions for repaying $10 billion government loan it received last autumn, The Associated Press reported. The Federal Reserve, which oversees the safety and soundness of the biggest American banks, said it planned to announce next week an ‘‘initial set’’ of banks that were approved for repayment. The Treasury Department has the final say on whether a bank is allowed to repay the money, and once regulators sign off, the bank may return the money within days. The Troubled Asset Relief Program, or TARP, was intended last autumn as a long-term investment by the government to get the financial industry through the worst crisis since the Depression. But when compensation and other restrictions were attached to calm political furor over Wall Street bonuses, banks lobbied hard for permission to leave the program. Banks have been sparring with the administration of President Barack Obama for months over how quickly
they may repay bailout money. The government has prohibited the banks from reimbursing it unless they can prove they are healthy enough to raise money in the capital markets on their own, to avoid having to dole out a new round of support should the recession deepen. In recent months, many of the strongest banks began jockeying to demonstrate their ability to repay the government’s money. As the credit markets have improved, they have issued debt without guarantees from the Federal Deposit Insurance Corp. And all eight big banks that received bailout money and passed the government’s stress tests have also raised capital by voluntarily selling common stock to private investors, even though regulators did not require them to do so. JPMorgan Chase and American Express, which an-
Early repayment may mean less of a return for taxpayers. nounced a $500 million offering Monday, were the last in that group. Early repayment of these funds, and of warrants the government received from banks last fall, may mean less of a return to U.S. taxpayers for rescuing the banks. But it will have the benefit of letting the government rechannel some of the money in the $700 billion bailout program to other smaller banks that need it. Even before the stress test results were released, bank officials had been pressing regulators to let them repay the money. Bank of New York Mellon, Goldman Sachs, JPMorgan, Morgan Stanley, State Street and U.S. Bancorp have already sent regulators letters of intent to repay the government, a U.S. official briefed on the situation said. ‘‘If we didn’t get out of TARP, we’d be very surprised,’’ Jamie Dimon, the chairman and chief executive of JPMorgan, said Monday, although he acknowledged the government could still change its criteria. ‘‘Obviously, you know, they can do anything they want.’’ On Monday, the Federal Reserve added a new requirement that big banks seeking to repay the government sell a sizable amount of common stock to private investors. Regulators expect to review the applications and decide next week. Zachery Kouwe contributed reporting.
BY DAVID BARBOZA
Timothy F. Geithner ended his first trip to China as U.S. Treasury secretary on Tuesday by saying that the visit had begun to lay the foundation for greater cooperation between Washington and Beijing on a wide range of issues, including global finance and climate change. Carrying on a practice that began under the administration of George W. Bush, Mr. Geithner held high-level talks with some of China’s top leaders. On Tuesday, the meetings included talks with President Hu Jintao and Prime Minister Wen Jiabao. Mr. Geithner said during an interview that Beijing had not lost faith in the U.S. economy. ‘‘What I sense is a fair amount of confidence in the underlying strength of the American economy,’’ Mr. Geithner said at a briefing Tuesday. The visit came amid growing worries in China over the state of the American economy and the prospect that heavy government spending and ballooning deficits in the U.S. could eventually weaken the dollar and destroy the value of China’s huge U.S. Treasury holdings. China is the largest holder of U.S. debt and experts say that if Beijing slows its purchases of U.S. Treasury bills, the move could deepen and prolong the global recession. Some Chinese economists have called on Beijing to significantly reduce purchases of American debt. And the head of China’s central bank has even proposed that there be an alternative currency to replace U.S. dollar as an international reserve currency. In pushing for greater cooperation with Beijing this week, Mr. Geithner seemed to take a softer tone than some of his predecessors in the Bush administration. He failed to raise any contentious issues in public this week, and continuously praised Beijing’s efforts to manage and stimulate its economy. He also largely avoided any discussion of piracy or revaluing the renminbi, and said he would press for China to have a greater role in the International Monetary Fund. Asked why he was pressing for China to have a greater role at the I.M.F., Mr. Geithner said: ‘‘I just see it as the necessary evolution.’’ Trying to assuage fears about the U.S. deficit, Mr. Geithner also promised that once the U.S. economy recovered, the administration of President Barack Obama is determined to rein in spend-
Three U.S. banks raise cash to repay rescue funds NEW YORK BLOOMBERG NEWS
Morgan Stanley, JPMorgan Chase and American Express said separately Tuesday that they had raised a total of $7.7 billion in fresh capital after the Federal Reserve imposed additional requirements on financial companies that were seeking to repay U.S. rescue funds. Morgan Stanley, one of the largest U.S. bank by assets, said it sold $2.2 billion of common stock. JPMorgan Chase, the second-largest U.S. bank after Bank of America, sold $5 billion. American Express, the top U.S. credit-card company, sold $500 million. JPMorgan and American Express, which got aid from the Troubled Asset
Relief Program, were among 9 of 19 financial companies subjected to stress tests that were deemed to have no need for more capital. The stock sales help the companies comply with a rule that they demonstrate they can tap equity investors. Morgan Stanley, which last month raised $4.6 billion after regulators said it needed $1.8 billion, was told to raise more. ‘‘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,’’ said Brad Hintz, an analyst at Sanford C. Bernstein in New York. The government is saying ‘‘we need to make sure that in a dynamic world you can continue to raise capital.’’ None of the companies have yet won approval to repay the U.S. rescue funds.
The chief executive of JPMorgan, Jamie Dimon, said on a conference call Monday that he would be ‘‘very surprised’’ if the bank was not able to refund the government in full by the end of this month. Morgan Stanley said it also expects its share sale to enable the bank to repay TARP by the end of June. Mr. Dimon, who called the TARP money ‘‘a scarlet letter,’’ in April, made it clear that he was ready to get out from underneath the government control that accompanied the Treasury funding. ‘‘Dear Timmy, we are happy to be able to pay back the $25 billion you lent us,’’ Mr. Dimon read Monday from a mock letter to the U.S. Treasury secretary, Timothy F. Geithner. ‘‘We hope you enjoyed the experience as much as we did.’’
Abu Dhabi sells down its Barclays stake PARIS
BY DAVID JOLLY
Shares of Barclays fell sharply Tuesday after Abu Dhabi unloaded a big part of its investment in the British bank, made near the height of the credit crisis last year. Barclays enraged its shareholders when it went over their heads in October to seek £7 billion, or $11 billion, in emergency funds, mostly from Middle Eastern investors including Abu Dhabi and Qatar. Late Monday, International Petroleum Investment Co., or I.P.I.C., which is wholly owned by the Abu Dhabi government, said it would sell mandatory convertible notes equivalent to 1.3 billion Barclays shares. The stock converted at 153 pence a
AHMED JADALLAH/REUTERS
A Barclays branch in Dubai. Abu Dhabi booked a hefty profit from the stake sale.
share. At the Monday closing price of 316.25 pence, the stock’s high for the year, Abu Dhabi’s £2 billion investment would be worth about £4.1 billion. In practice, Credit Suisse, which handled the mammoth one-day sale Tuesday, placed the shares at 265 pence each, said Gavin Sullivan, a bank spokeswoman. ‘‘Abu Dhabi’s done extremely well, so they’ve gone away happy,’’ Howard Wheeldon, senior strategist at BGC Partners in London, said. ‘‘They showed faith in Barclays.’’ Barclays stock fell 42.75 pence, or 13.52 percent, to close at 273.5 pence in London, reflecting the fact that the sale raised the number of Barclays shares in the market by more than 15 percent, to about 9.7 billion. Barclays shares are still up nearly 80 percent this year, while the FTSE global banks index is up nearly 12 percent. Many governments and investors that provided aid to shore up banks after Lehman Brothers collapsed in September are now thinking of extricating themselves from their investments. The Barclays divestment appeared to make Abu Dhabi one of the first big sovereign wealth funds to do so at a profit. Temasek Holdings, a fund owned by the Singapore Ministry of Finance, is thought to have lost at least $3 billion on its stake in Bank of America, which it sold in the first quarter. The Swiss government is considering an exit from its investment in UBS, which it provided with 6 billion Swiss francs, or $5.6 billion, in October. Institutional investors and Qatari funds are also holding billions of pounds’ worth of mandatory convertible notes in Barclays, which will convert to common shares at the end of June at 153 pence each. That means there will be about 11 billion shares on the market, counting the Abu Dhabi stake. But the investors
are under no obligation to sell. I.P.I.C., which is run by Sheik Mansour bin Zayed al-Nahyan, a member of the Abu Dhabi ruling family, said it was selling its stake before the mandatory end-June conversion date to focus on its core oil and natural gas business. In a statement, Khadem al-Qubaisi, managing director of the Abu Dhabi fund, expressed ‘‘great confidence’’ in Barclays. ‘‘The Emirate of Abu Dhabi intends to maintain a close commercial and strategic relationship with Barclays in the future,’’ he said. ‘‘The decision to dispose of some of its interests in Barclays reflects the focus of I.P.I.C.’s long-term investment strategy on hydrocarbon-related opportunities.’’ ‘‘I don’t think it’s a reflection on Barclays,’’ Mr. Wheeldon said of the decision by Abu Dhabi to sell. ‘‘Rather, I think it’s a reflection on Abu Dhabi’s view of the market, which has probably run up faster than anticipated, so maybe it’s time to pause to catch up.’’ Barclays, which operates in more than 50 countries and employs 156,000 people worldwide, has sought to expand during the financial crisis, acquiring Lehman Brothers’ operations in the United States and adding staff in Europe and Asia. Analysts said the Abu Dhabi sale was unlikely to affect the bank’s plans. The bank’s chief executive, John Varley, said in a statement that as a result of Abu Dhabi’s 2008 investment in Barclays, ‘‘we have been able to broaden our strategic and commercial relationship, and we look forward to developing this further going forward.’’ Barclays has managed to avoid relying on the British government for aid — unlike its rivals Royal Bank of Scotland and Lloyds TSB, which are now effectively wards of the state. To buttress its balance sheet, Barclays is selling its iShares exchange-traded funds business.
POOL PHOTO BY ANDY WONG-POOL/REUTERS
Timothy F. Geithner, left, the U.S. Treasury secretary, with Prime Minister Wen Jiabao, right, of China on Tuesday in Beijing. Geithner said he expected greater cooperation between Washington and Beijing on issues including global finance and climate change.
ing and tackle the deficit. ‘‘As we recover from this unprecedented crisis, we will cut our fiscal deficit,’’ he said. At a speech Monday at Peking University, Mr. Geithner outlined a broad set of initiatives aimed at rebalancing the global economy. Following the analysis of some leading global economists, Mr. Geithner said the U.S. needed to save more and consume less and called upon China to strengthen its own economy by moving away from an export driven model to one that relied more on domestic consumption. ‘‘How successful we are in Washington and Beijing will be critically important to the economic fortunes of the rest of the world,’’ Mr. Geithner said. Analysts say the new Treasury secretary is clearly interested in pressing U.S. interests in China, on copyright issues, greater access to China’s financial markets and the sale of American clean energy technologies. He used a visit to the Beijing Capital Museum on Tuesday afternoon to highlight climate change as an important aspect of the coming dis-
cussions with Beijing and to show off U.S.-produced solar panels. But some experts say Mr. Geithner is also trying to earn the confidence of the Chinese leadership so that Washington can find more ways to cooperate on major global issues. Late Tuesday, Treasury officials announced that in the last week of July, Washington planned to host the first meeting of the Strategic and Economic Dialogue, a broad set of high-level talks with Beijing. Mr. Geithner and Secretary of State Hillary Rodham Clinton are expected to play host to their Chinese counterparts for a series of meetings quite similar to the previous Treasury secretary, Henry M. Paulson Jr., established a few years ago. C.Fred Bergsten, director of the Peterson Institute for International Economics in Washington, said U.S. relations with China had intensified and strengthened in recent years, growing increasingly important as the two powers had recognized the need to work together to solve global problems.
The Obama administration’s seemingly soft approach, he said, may be a new kind of diplomacy that has emerged in the wake of the financial crisis. ‘‘I suspect part of what you’re seeing with Geithner is a change in style,’’ Mr. Bergsten said during an interview Monday. ‘‘Maybe he’ll raise some of these issues, like piracy and exchange rate reform, more quietly, and that may be more effective.’’ But Yu Yongding, a former adviser to China’s central bank and a member of the Chinese Academy of Social Sciences, said Washington needed to win Beijing’s confidence by protecting China’s investments in American debt and helping reform the global financial system. ‘‘If the U.S. can find a way to protect China’s assets, America’s standing here will increase,’’ Mr. Yu said Monday. ‘‘We are not going to return to the good old days of 2006. We are going to promote the creation of a new world order.’’
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