A significant amount of the next wave of bank paybacks of government money will be from large, well-known institutions, and may satisfy some critics who felt that the "bailout" was a waste of taxpayers funds, rather than being the investment that it actually was.

9 Ways To Go Bankrupt

The Capital Purchase Program (CPP), an integral part of the Troubled Asset Relief Program (TARP) initiated by the Bush Administration, has certainly been one of the more controversial parts of the government "bailout" with its restrictions on executive pay, dividends and other corporate activity, leading most participants to regret enrolling in the plan.

Most of the banks announcing that they would redeem the preferred stock issued to the U.S. government as part of the CPP have been small regional or community banks that paid back what amounted to only a pittance of the hundreds of billions that the government invested in the nation's financial sector. These include First Niagara Financial Group Inc. (Nasdaq:FNFG) which took $184 million, and Somerset Hills Bancorp (Nasdaq:SOMH) which received only $7.4 million.

Not so for the next round, as already three of the banks that were assessed in the Supervisory Capital Assessment Program (SCAP), or stress tests, as they are colloquially known, have announced they are raising equity to be used at least partially for this purpose. (Break down the walls around researching financial institutions' financials Analyzing A Bank's Financial Statements.)

U.S. Bancorp (NYSE:USB) said it was conducting an equity offering to raise $2.5 billion, and issuing a five year note in the amount of $1 billion.

Capital One (NYSE:COF) is issuing 56 million shares of its common stock, which, at the current price of $28.50, would raise approximately $1.6 billion.

BB&T (NYSE:BBT) announced a $1.5 billion offering of common stock, and also cut its dividend to retain capital.

All these banks would need to do additional capital raising, or use current funds as the amount raised falls short of what they received from the government when it issued preferred stock and warrants. U.S. Bancorp received $6.6 billion, Capital One received $3.5 billion and BB&T took in $3.1 billion.

All three banks were unscathed by the SCAP, with none needing a capital buffer under the adverse scenario that the Federal Reserve conducted. The other six institutions that had no need for capital are American Express (NYSE:AXP), JP Morgan (NYSE:JPM), Met Life (NYSE:MET), Bank of New York Mellon Corp. (NYSE:BK), Goldman Sachs (NYSE:GS) and State Street (NYSE:STT).

Look for some of these six next to either raise capital or announce that it will use existing capital to redeem the government preferred, except for Met Life, which was the only one either smart or lucky enough to turn it down.

Most felt that the CPP was a bailout, and represented a loss of cash for the government and thus a loss for the taxpayers. Hopefully, the actions of the next group of banks, which will be paying back every penny they received with accrued interest, will convince the public that the investment the government made wasn't so bad after all. (Learn more in Is the current government bailout a fool in the shower?)

Related Articles
  1. Mutual Funds & ETFs

    The 4 Best Buy-and-Hold ETFs

    Explore detailed analyses of the top buy-and-hold exchange traded funds, and learn about their characteristics, statistics and suitability.
  2. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  3. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  4. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  5. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  6. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  7. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  8. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  9. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  10. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!