Bank of America Will Repay TARP

For the 1st time in a long time I am feeling better about my investment in Bank of America. Is the nation’s largest bank still troubled by delinquent mortgages payments? Definitely. Has the economy improved enough that the B of A can be sure that credit card charge offs are over? Definitely not. But it is a positive development that the banking giant is going to repay over 45 billion in government assistance from the TARP.

Bank of America will use 26 billion in cash and raised almost 20 billion dollars through the sale of stock and other securities in order to repay its loan from the government. The fact that the government is allowing Bank of America to repay the loan shows the Fed must believe that B of A has enough Tier 1 capital to survive the current economic downturn. Less then 10 months ago there were major concerns over if the 45 billion in government assistance was even enough. Today Bank of America is repaying the loan in full.

It is a smart move by Bank of America to access the improved capital markets for needed funds when the Dow is at its 52 week high. The repayment shows that B of A has been able to offset many of its losses with its strong earnings power. Repaying the TARP should allow B of A to generate more revenue in the coming years by not having to pay TARP dividends. The sooner that Bank of America can repay the TARP and remove all regulatory constraints; the quicker the return to normalized earnings.