Wells Fargo (NYSE:WFC) Secures Deal to Pay Back $25 Billion in TARP Funds

Wells Fargo (NYSE:WFC) announced it has made a deal with the government to pay back all of the $25 billion in TARP funds it received from taxpayers.

Although it has resisted doing so, Wells Fargo announced they would offer a $10.4 billion share offering as part of the capital raised to pay back the money owed.

The company has asserted in the past they wanted to pay back the TARP funds in a shareholder-friendly way, so the value of the shares weren’t diluted over a period of time.

Unsurprisingly, when Bank of America (NYSE:BAC) said they were going to pay back all of the $45 billion in TARP funds, and then Citibank (NYSE:C) chimed in with the same idea right afterwards, it was assumed all the large banks would fall in line and pay back what they owned as soon as possible.

Although the restriction which applied to Bank of America and Citibank didn’t apply to Wells Fargo, as far as government interference in executive pay and bonuses, there was still the stigma of being one of the largest banks in the country still owing funds to the government, something obviously Wells Fargo and Citibank didn’t want to live with once Bank of America made their announcement and move to pay back what they owed.

Common shareholders of Wells Fargo will probably have about $2 billion less available to them in the fourth quarter once the company repurchases preferred stock owned by TARP, as the “book value of the preferred stock is less than the amount paid,” said the company in a statement.

Evidently capital reserve levels are considered high enough and healthy enough by the government for them to all be allowed to be paid back at this time, as recently is was implied each bank would have to be looked at individually before making that decision. Odd how quickly it all came together for all the banks.

The most recent quarterly results for Wells Fargo had them generate record profits of $3.2 billion, an increase of 98 percent from the same quarter last year, giving them a legitimate argument it was ready to pay the money back.

Wells Fargo, to their credit, was one of the banks which never wanted to receive TARP funds in the first place, as it knew the eventual regulations that would accompany those funds. I also think they knew the circumstance would arise, like it has, where the shareholders would be made to suffer from it. That now has happened.