SIGTARP 11-005 September 29, 2011 

Exiting TARP: Repayments by the 

Largest Financial Institutions 
Office of the special inspector general 

 For the Troubled Asset Relief Program 

1801 L Street, NW, 4th Floor 

Washington, D.C. 20220 

 

SIGTARP 11-005 September 29, 2011 

September 29, 2011 

MEMORANDUM FOR: The Honorable Timothy F. Geithner, Secretary of the Treasury 

The Honorable John Walsh, Acting Comptroller of the Currency 

The Honorable Martin J. Gruenberg, Acting Chairman, Board of Directors 

of the Federal Deposit Insurance Corporation 

The Honorable Ben S. Bernanke, Chairman, Board of Governors of the 

Federal Reserve System 

FROM: Christy L. Romero, Acting Special Inspector General for the Troubled 

Asset Relief Program 

 

SUBJECT: Exiting TARP: Repayments by the Largest Financial Institutions 

We are providing this audit report for your information and use. It discusses the development 

and application of criteria by Treasury and Federal banking regulators for the largest banks to 

repay and exit CPP and other TARP programs. 

The Office of the Special Inspector General for the Troubled Asset Relief Program conducted 

this audit under the authority of Public Law 110-343, as amended, which also incorporates the 

duties and responsibilities of inspectors general under the Inspector General Act of 1978, as 

amended. 

We considered comments from the Department of the Treasury, the Federal Reserve Board, the 

Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency when 

preparing the final report. The comments are addressed in the report, where applicable, and 

copies of agencies’ responses to the audit are included in Appendix G of this report. 

We appreciate the courtesies extended to the SIGTARP staff. For additional information on this 

report, please contact Mr. Kurt Hyde, Deputy Special Inspector General for Audit and Evaluation 

(Kurt.Hyde@treasury.gov / 202-622-4633), or Ms. Kimberley A. Caprio, Assistant Deputy 

Special Inspector General for Audit and Evaluation (Kimberley.Caprio@treasury.gov / 202-927-

8978). 
Exiting TARP: Repayments by the Largest Financial Institutions

SIGTARP 11-005 September 29, 2011 

Summary 

The first program under the Troubled Asset Relief 

Program (“TARP”) was the Capital Purchase 

Program (“CPP”), through which the U.S. Department 

of the Treasury (“Treasury”) invested in what 

Treasury described as healthy and viable financial 

institutions to promote financial stability and 

confidence in the financial system. Approximately 

80% ($163.5 billion) of all CPP funds went to the 17 

CPP banks that were subject to the Supervisory 

Capital Assessment Program (“SCAP”), which stresstested the nation’s 19 largest financial institutions and 

estimated future losses, revenues, and needed 

reserves. 

Despite the dramatic efforts of the U.S. Government, 

in early 2009, the market still lacked confidence in 

some of the nation’s largest financial institutions and 

some TARP recipients complained of a stigma 

associated with their participation in the program. 

Generally, under the original terms of CPP, banks 

were not permitted to repay Treasury and exit TARP 

for three years. That changed with the enactment of 

the American Recovery and Reinvestment Act of 

2009 (“ARRA”) on February 17, 2009, which 

eliminated the waiting period. In May 2009, the 

Federal Reserve Board (“FRB”) released the results 

of the stress test for SCAP banks and FRB 

subsequently issued guidance for TARP repayments. 

FRB’s guidance for TARP exit by SCAP institutions 

focused on capital – specifically the TARP recipient’s 

ability to meet SCAP capital targets and its ability to 

issue common stock in the market. Nine SCAP 

institutions quickly repaid Treasury’s investment and 

exited TARP in June 2009. The eight remaining 

SCAP institutions that received CPP funds were 

considered to be weaker by regulators than the nine 

that exited TARP in June 2009. These included 

some of the nation’s largest banks, such as Bank of 

America Corp. (“Bank of America”), Citigroup Inc. 

(“Citigroup”), and Wells Fargo & Company (“Wells 

Fargo”). Non-public guidance issued by FRB on 

November 3, 2009, and agreed to by the other 

regulators and Treasury, added a provision that 

would allow these SCAP banks to repay on an 

expedited basis. 

As part of SIGTARP’s continuing oversight, we 

performed a review of the process that Treasury and 

Federal banking regulators established for the largest 

banks to repay and exit CPP and other TARP 

programs in which the banks participated. 

SIGTARP’s reporting objectives for this audit were to 

determine to what extent: (1) Treasury maintained a 

consistent and transparent role in the TARP 

repayment process; and (2) Federal banking 

regulators consistently coordinated and evaluated the 

TARP repayment request. SIGTARP focused this 

review on repayments by the first 13 of the 17 SCAP 

institutions that participated in CPP to repay 

Treasury’s TARP investment. 

What SIGTARP Found 

In February 2009, when ARRA was enacted, 

Treasury and Federal banking regulators had not 

developed criteria or guidance to evaluate a bank’s 

proposal to exit TARP. Treasury published basic 

criteria in May, and on June 1, 2009, FRB issued 

guidance for those banks that were subject to the 

stress tests (SCAP institutions) to exit TARP. FRB’s 

guidance primarily focused on the banks’ capital 

levels. Institutions that met SCAP target capital 

ratios were allowed to repay after satisfying certain 

requirements, including issuing new common stock. 

In June 2009, nine out of the 17 SCAP banks exited 

CPP: JPMorgan Chase & Co., The Goldman Sachs 

Group, Inc., Morgan Stanley, U.S. Bancorp, Capital 

One Financial Corporation, American Express 

Company, BB&T Corporation, The Bank of New York 

Mellon, and State Street Corporation. The remaining 

eight were not yet eligible to repay. Regulators saw 

those institutions as weaker than the SCAP 

institutions that exited TARP and required them to 

meet additional criteria including raising additional 

capital. 

After FRB issued new, non-public guidance on 

November 3, 2009, to the eight remaining SCAP 

institutions, some institutions immediately requested 

to exit TARP, under a provision in the revised 

guidance that permitted expedited repayment. These 

included Bank of America, Citigroup, Wells Fargo, 

and PNC Financial Services Group, Inc. (“PNC”). 

The November guidance provided that, subject to 

meeting criteria such as demonstrating access to 

long-term debt markets and satisfying SCAP 

requirements, the remaining institutions may be 

allowed to repay upon issuing at least $1 in new 

common equity for every $2 TARP repaid. An FRB 

official told SIGTARP that the 1-for-2 ratio was, in 
Exiting TARP: Repayments by the Largest Financial Institutions

SIGTARP 11-005 September 29, 2011 

part, based upon an assessment of the banks’ capital 

levels from the recently completed stress tests. 

SIGTARP found that interagency sharing of data, 

vigorous debate among regulators, and hard-won 

consensus increased the amount and improved the 

quality of the capital that SCAP institutions were 

required to raise to exit TARP. FRB agreed to 

consult with the Federal Deposit Insurance 

Corporation (“FDIC”) and the Office of the 

Comptroller of the Currency, on repayment 

proposals. That consultation often generated both 

conflict and frustration because of varied and 

occasionally conflicting policy approaches as 

regulators pushed back at different times on 

repayment proposals. FDIC, exposed through its 

deposit insurance fund and its emergency lending 

program, was by far the most persistent in insisting 

that banks raise more common stock. The checksand-balances that resulted from this interagency 

coordination helped to ensure that the nation’s 

largest financial institutions were better capitalized 

upon exiting TARP than prior to TARP. However, 

three aspects of the TARP exit process serve as 

important lessons learned. 

First, Federal banking regulators relaxed the 

November 2009 repayment criteria only weeks after 

they were established, bowing at least in part to a 

desire to ramp back the Government’s stake in 

financial institutions and to pressure by institutions 

seeking a swift TARP exit to avoid executive 

compensation restrictions and the stigma associated 

with TARP participation. The large financial 

institutions seeking to exit TARP were notably 

persistent in their efforts to resist regulatory demands 

to issue common stock, seeking instead more 

creative, cheaper, and less sturdy alternatives that 

provide less short- or long-term loss protection than 

new common stock. Bank of America, Wells Fargo, 

and PNC, for example, requested expedited 

repayment, but each institution balked at issuing the 

amount of common stock required by regulators. 

When Bank of America, Citigroup, and Wells Fargo 

repaid Treasury in December 2009, only Citigroup 

met the 1-for-2 minimum established by the 

guidance, combining new common stock and other 

types of capital to meet a more stringent requirement. 

Because the regulators failed to adhere to FRB’s 

clearly and recently established requirements, the 

process to review a TARP bank’s exit proposal was 

ad hoc and inconsistent. 

Second, by not waiting until the banks were in a 

position to meet the 1-for-2 provision entirely with 

new common stock, there was arguably a missed 

opportunity to further strengthen the quality of each 

institution’s capital base to protect against future 

losses without selling sources of revenue. Although 

the 1-for-2 minimum was established as a capital 

buffer to allow each bank to absorb losses under 

adverse market conditions, the discussion quickly 

switched to analysis of how much common stock the 

market could absorb during a frenzied period in which 

each of these TARP banks wanted to exit at that time 

based in part on news that other large banks were 

exiting TARP. Concerned about executive 

compensation restrictions and a lack of market 

confidence that might result from being the last large 

TARP bank to exit, banks successfully convinced 

regulators that it was the right time to exit TARP, and 

that the market would not support a 1-for-2 common 

stock issuance. There was arguably a missed 

opportunity to wait until the market could absorb a 1-

for-2 common stock issuance, which would have had 

long lasting consequences in further strengthening 

the quality of the banks’ capital base. 

Third, SIGTARP also found that Treasury 

encouraged TARP banks to expedite repayment, 

opening Treasury to criticism that it put accelerating 

TARP repayment ahead of ensuring that institutions 

exiting TARP were sufficiently strong to do so safely. 

Treasury Secretary Timothy F. Geithner told 

SIGTARP that putting pressure on firms to raise 

private capital was part of a “forceful strategy of 

raising capital early” and “We thought the American 

economy would be in a better position if [the firms] 

went out and raised capital.” Treasury’s involvement 

was also more extensive than previously understood 

publicly. While regulators negotiated the terms of 

repayment with individual institutions, Treasury 

hosted and participated in critical meetings about the 

repayment guidance, commented on individual TARP 

recipient’s repayment proposals, and in at least one 

instance urged the bank (Wells Fargo) to expedite its 

repayment plan. The result was a nearly 

simultaneous exit by Bank of America, Wells Fargo, 

and Citigroup, involving offerings of a combined total 

of $49.1 billion in new common stock in an already 

fragile market, despite warnings that large and 

contemporaneous equity offerings might be too much 

for the market to bear. While none of the offerings 

failed, Citigroup exercised only a portion of its 

overallotment option, and later complained that Wells 
Exiting TARP: Repayments by the Largest Financial Institutions

SIGTARP 11-005 September 29, 2011 

Fargo’s simultaneous offering sapped demand for 

Citigroup’s stock. 

The lessons of the financial crisis and the events 

surrounding TARP repayments and exit demonstrate 

the importance of implementing strong capital 

requirements and holding institutions strictly 

accountable to those requirements. Some of the 

nation’s largest financial institutions had too little 

capital before the last crisis, a fact that not only 

contributed to the crisis itself but also necessitated 

the subsequent bailouts. Regulators leveraged 

TARP repayment requirements to improve the quality 

of capital held by the nation’s largest financial 

institutions in the wake of the financial crisis, but 

relaxed those requirements shortly after establishing 

them. Whether these institutions exited TARP with a 

strong and high quality capital structure sufficient to 

absorb their own losses and survive adverse market 

conditions without further affecting the broader 

financial system remains to be seen. There will 

always be tension between the protection of the 

greater financial system through robust capital 

requirements and the desire of individual financial 

institutions to maximize profits and shareholder 

returns. While striking the right balance is no easy 

task, regulators must remain vigilant against 

institutional demands to relax capital requirements 

while taking on ever more risk. 
Exiting TARP: Repayments by the Largest Financial Institutions

SIGTARP 11-005 September 29, 2011 

Table of Contents 

Introduction ................................................................................................................................................. 1

Background ................................................................................................................................................. 4

June 2009 Guidance and Subsequent Repayments ................................................................................... 10

November 2009 Clarifying Guidance ....................................................................................................... 17

Bank of America’s TARP Exit ................................................................................................................. 24

Citigroup’s TARP Exit ............................................................................................................................. 34

Wells Fargo’s TARP Exit ......................................................................................................................... 44

PNC’s TARP Exit ..................................................................................................................................... 50

Capital Quality Improved Among Bank of America, Citigroup, Wells Fargo, and PNC, but 

Pressures Remain ................................................................................................................................... 56

Conclusions ............................................................................................................................................... 59

Management Comments ........................................................................................................................... 64

Appendix A – Scope and Methodology .................................................................................................... 65

Appendix B – Role of Federal Banking Regulators ................................................................................. 68

Appendix C – Additional FAQs on Capital Purchase Program Repayment Published by Treasury 

in May 2009 ........................................................................................................................................... 69

Appendix D – June 2009 and November 2009 TARP Repayment Guidance to SCAP Institutions ........ 71

Appendix E – FRB Redemption Request Decision Memo ....................................................................... 76

Appendix F – SCAP Institutions’ Exit from CPP ..................................................................................... 80

Appendix G – Management Comments from FRB, OCC, and Treasury ................................................. 81

Appendix H – Audit Team Members ........................................................................................................ 87
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 1

SIGTARP 11-005 September 29, 2011 

Introduction 

The first use of Troubled Asset Relief Program (“TARP”) funds was the Capital 

Purchase Program (“CPP”), through which the U.S. Department of the Treasury 

(“Treasury”) made investments in qualifying banks, bank holding companies, and 

other financial institutions in exchange for preferred stock1 (or certain debt 

instruments)2 and warrants.3 Through CPP, Treasury sought to invest funds in 

“healthy, viable institutions” as a way of promoting financial stability, 

maintaining confidence in the financial system, and permitting lenders to meet the 

nation’s credit needs. From October 2008 through December 2009, when CPP 

closed to new investments, Treasury invested $204.9 billion in 707 institutions. 

Approximately 80% of all CPP investments – $163.5 billion – went to the 17 CPP 

banks that were subject to the Supervisory Capital Assessment Program 

(“SCAP”), a joint Treasury and regulator program that stress-tested the nation’s 

19 largest financial institutions.4

 

Despite the dramatic efforts of the U.S. Government, in early 2009, the market 

still lacked confidence in some of the nation’s largest financial institutions and 

some TARP recipients complained of a stigma associated with their participation 

in the program. Under the original terms agreed to by each CPP recipient, banks 

and other financial institutions were not permitted to repay Treasury’s TARP 

investment and exit TARP for three years, unless certain exceptions applied.5 

When asked about the rationale for establishing a repayment waiting period, 

Treasury referred the Office of the Special Inspector General for the Troubled 

Asset Relief Program (“SIGTARP”) to language published by former Treasury 

Secretary Henry Paulson, citing the important role that CPP funds played in 

calming markets and restoring confidence in the banking industry. On 

February 17, 2009, the American Recovery and Reinvestment Act of 2009 

(“ARRA”) changed the timing and conditions under which CPP recipients could 

repay Treasury’s TARP investment. ARRA provided that “subject to consultation 

 

1

 Preferred stock is equity ownership that usually pays a fixed dividend prior to distributions for common stock owners 

but only after payments due to holders of debt and depositors. It typically confers no voting rights. Preferred stock 

also has priority over common stock in the distribution of assets when a bankrupt company is liquidated. 2

 The debt instruments were subordinated debt, which ranks below senior debt but above equity with regard to investors’ 

claims on company assets or earnings. Senior debt holders are paid in full before subordinated debt holders are paid. 

There may be additional distinctions of priority among subordinated debt holders. 3

 The Emergency Economic Stabilization Act of 2008 (“EESA”) mandated, with limited exceptions, that Treasury 

receive warrants granting it the right to purchase at a previously determined price shares of common stock for certain 

publicly traded institutions or preferred stock or debt for certain non-publicly traded institutions for which it provided 

assistance. 4

 The SCAP stress tests were a forward-looking exercise designed to estimate losses, revenues, and reserve needs. The 

tests were conducted between February 2009 and April 2009, with results announced in May 2009. Of the 19 

institutions that participated in SCAP, 17 were CPP participants. See the Background for further discussion of SCAP. 5

 For the purposes of this report, “exit” from TARP refers to the removal of restrictions placed on TARP recipients by 

EESA, either through the repurchase of securities held by Treasury or through other means of ending Treasury’s TARP 

investment in the institution. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 2

SIGTARP 11-005 September 29, 2011 

with the appropriate Federal banking agency...[Treasury] shall permit a TARP 

recipient to repay...[TARP funds] without regard to whether the financial 

institution has replaced such funds from any other source or to any waiting 

period.” 

In February 2009, at the time ARRA was enacted, Treasury and the Federal 

banking regulators had not developed criteria or guidance to evaluate a bank’s 

proposal to repay Treasury’s TARP investment by repurchasing its preferred 

shares held by Treasury and exit TARP. In May, the Federal Reserve Board 

(“FRB”) released the results of the SCAP stress tests and some SCAP banks 

immediately requested to repay Treasury and exit TARP. That month, Treasury 

published basic criteria for CPP institutions seeking to exit TARP, and on 

June 1, 2009, FRB issued a press release with guidance specific to SCAP banks 

that wanted to repay Treasury and exit TARP. Institutions that met the target 

capital ratios established by SCAP were allowed to repay after satisfying certain 

requirements, including raising common stock through a public issuance. Those 

that did not meet the SCAP targets were required to wait. That month, nine out of 

the 17 SCAP banks that participated in CPP exited the program: JPMorgan Chase 

& Co. (“JPMorgan”), The Goldman Sachs Group, Inc. (“Goldman Sachs”), 

Morgan Stanley, U.S. Bancorp, Capital One Financial Corporation (“Capital 

One”), American Express Company (“American Express”), BB&T Corporation 

(“BB&T”), The Bank of New York Mellon (“BNY Mellon”), and State Street 

Corporation (“State Street”). 

In the fall of 2009, some of the SCAP banks remaining in TARP began 

communicating to Treasury and the Federal banking regulators their desire to 

repay and exit TARP. These included some of the nation’s largest banks, such as 

Bank of America Corp. (“Bank of America”), Citigroup Inc. (“Citigroup”), Wells 

Fargo & Company (“Wells Fargo”), and the PNC Financial Services Group, Inc. 

(“PNC”). Some of these institutions expressed concern about the perceived 

stigma associated with their participation in TARP as well as being subject to 

TARP executive compensation restrictions. Treasury and the Federal banking 

regulators engaged in discussions about revising the June criteria to provide 

additional guidance for these SCAP banks to repay and exit TARP. The result 

was new non-public guidance issued by FRB on November 3, 2009, which added 

an option for remaining SCAP banks to issue a certain amount of common equity 

to be considered for TARP repayment on an expedited basis. 

SIGTARP focused its review on repayments by the largest CPP recipients; 

specifically, the first 13 (of the 17 SCAP institutions that participated in CPP) to 

repay Treasury’s CPP investment and exit TARP, with additional detail on those 

occurring after FRB issued revised repayment guidance in November 2009.6

 

 

6

 In response to a draft of this report, FRB strenuously objected to the inclusion of a significant amount of text on the 

grounds that it was confidential and that disclosure would violate the bank supervision privilege. In doing so, FRB 

expressed concern that SIGTARP’s inclusion of certain discussion among regulators about specific repayment requests 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 3

SIGTARP 11-005 September 29, 2011 

Though they represent less than 2% of the number of institutions receiving CPP 

funds, the repayments by the 13 institutions reviewed in this report comprise 

approximately 81.5% of the total principal amount repaid to Treasury under CPP 

as of August 31, 2011. According to Treasury, as of that date, 219 banks and 

financial institutions have fully repaid Treasury’s CPP investment and exited the 

program. Treasury had received a total of $183.3 billion (or 89.4%) in principal 

repayments of its $204.9 billion CPP investment, and had collected an additional 

$25.6 billion in proceeds through dividends, interest, the sale of warrants, and 

gains on common stock investments. 

This report examines the development of TARP repayment guidance and its 

application by Treasury and the Federal banking regulators to the first 13 SCAP 

institutions to exit the program.7 Specifically, the objectives of the audit were to 

determine the extent to which: 

 Treasury maintained a consistent and transparent role in the TARP repayment 

process; and 

 Federal banking regulators consistently coordinated and evaluated TARP 

repayment requests. 

For discussion of the audit scope and methodology, see Appendix A. For 

additional information and comments from responding agencies, see Appendix G. 

 might, among other things, affect FRB’s ability to maintain open communication with supervised financial institutions. 

SIGTARP respectfully disagrees with FRB’s prediction of harm and believes that the exclusion of such information 

unnecessarily inhibits transparency, and is a missed opportunity to shed additional light on transactions that involved 

billions of dollars in taxpayer money. Nevertheless, out of an abundance of caution, SIGTARP has removed some of 

the text, while reaching agreement with FRB on the inclusion of other portions. 7

 SIGTARP included in its review any SCAP institution that had repaid TARP as of December 31, 2010. Since that date, 

three more SCAP institutions have repaid and exited TARP. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 4

SIGTARP 11-005 September 29, 2011 

Background 

By September 2008, financial markets suffered from a severe loss of investor 

confidence. During that month, a succession of major U.S. financial institutions 

either collapsed or approached the brink of failure, there was historic turmoil in 

financial markets, and the Government stepped in to provide unprecedented 

Federal assistance through TARP. On October 13, 2008, in a meeting with thenTreasury Secretary Henry Paulson and other senior Government leaders, nine 

large and systemically important institutions8

 agreed to accept $125 billion in 

TARP capital funding. These nine institutions were chosen for their perceived 

importance to the broader financial system. The next day, Treasury announced 

the establishment of CPP, making up to $250 billion in capital funding – 

including the $125 billion accepted by the original nine banks the day before – 

available to a broad array of qualifying financial institutions9 that were deemed to 

be healthy and viable by Federal regulators10 and Treasury. 

On October 28, 2008, the original nine financial institutions became the first 

recipients of TARP funds disbursed through CPP. Through the program, 

Treasury sought, in part, to “encourage U.S. financial institutions to build capital 

to increase the flow of financing to U.S. business and consumers and to support 

the U.S. economy.” The terms of CPP limited the amount of funding that 

qualifying institutions could receive to between 1% and 3% of their risk-weighted 

assets,11 up to a maximum of $25 billion.12 The original terms also generally 

restricted institutions from repaying CPP funds within three years of Treasury 

making the investment.13 In exchange for its investment, Treasury received 

 

8

 The nine institutions were: Bank of America, BNY Mellon, Citigroup, Goldman Sachs, JPMorgan, Merrill Lynch, 

Morgan Stanley, State Street, and Wells Fargo. Bank of America acquired Merrill Lynch in January 2009. For details 

on the selection of these nine institutions and Bank of America’s acquisition of Merrill Lynch, see SIGTARP report 

“Emergency Capital Injections Provided to Support the Viability of Bank of America, Other Major Banks, and the 

U.S. Financial System,” October 5, 2009. 9

 Pursuant to EESA, qualifying financial institutions were allowed to participate in TARP “without discrimination based 

on size, geography, or form of organization.” 10 The institutions participating in CPP are currently regulated by FRB, the Federal Deposit Insurance Corporation 

(“FDIC”), and the Office of the Comptroller of the Currency (“OCC”). Pursuant to the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, the Office of Thrift Supervision (“OTS”) will be eliminated 90 days after its 

powers and functions were transferred to the other Federal banking agencies on July 21, 2011. Appendix B identifies 

and explains the role of each Federal banking regulator. 11 The risk-weighting of assets is the classification of assets according to the risk of loss from investment in the asset. A 

bank’s assets are weighted according to credit risk, and some assets, such as debentures, are assigned a higher risk than 

others, such as cash or government bonds. This asset calculation is used in determining the capital requirement for a 

financial institution. 12 In May 2009, Treasury increased the maximum amount of CPP funding that small institutions could receive 3% to 5% 

of risk-weighted assets. Small institutions were defined as those with total assets less than $500 million. 13 Institutions that sold qualifying perpetual preferred stock or common stock for cash proceeds worth at least 25% of 

Treasury’s CPP investment to repay were excepted from this restriction. OCC determined whether equity offerings 

qualified an institution for this exception. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 5

SIGTARP 11-005 September 29, 2011 

dividend-paying preferred stock (or certain debt instruments) and warrants to 

purchase common stock. 

Treasury had invested $204.9 billion in 707 financial institutions by the time CPP 

closed to new investments in December 2009. While the 707 CPP participants 

reflected a diverse array of financial institutions, nearly half of the $204.9 billion 

in CPP funds were concentrated in four of the largest banks – Bank of America, 

Citigroup, JPMorgan, and Wells Fargo – each of which received the maximum 

$25 billion investment permitted under the program.14 

Bank of America and Citigroup Received Additional Government 

Support 

Despite a public statement by Treasury and Federal banking regulators that CPP 

was limited to healthy institutions, within months of receiving $25 billion each in 

CPP funds, two SCAP banks – Bank of America and Citigroup – each received 

additional TARP funds under the Targeted Investment Program (“TIP”),15 as well 

as agreements for protection on losses of certain assets on those institutions’ 

books and records under the Asset Guarantee Program (“AGP”).16 

In November 2008, Citigroup teetered on the brink of failure. The company 

would lose $27.7 billion in 2008, and by November 19, 2008, its stock price had 

dropped precipitously. With Citigroup’s survival in doubt, the Government, 

through TARP and other means, stepped in to save it. The Government provided 

Citigroup with an additional $20 billion of TARP funds in exchange for preferred 

stock under TIP and a Federal guarantee of a portion of losses on a designated 

pool of $306 billion in Citigroup assets under AGP. 

In December 2008, Bank of America was considering terminating a planned 

acquisition of Merrill Lynch, another CPP recipient that incurred significant 

losses in the fourth quarter of 2008. Because Treasury and FRB officials believed 

termination of the acquisition could potentially weaken Bank of America and 

destabilize the financial system, they pressured Bank of America to complete the 

acquisition and provided Bank of America with $20 billion in additional TARP 

funds through TIP, as well as an agreement for a Federal guarantee of a portion of 

losses on a pool of up to $118 billion in assets.17

 

14 Wells Fargo was in the process of acquiring Wachovia when the institutions agreed to accept CPP capital on 

October 13, 2008. After the acquisition was completed, Wells Fargo became the fourth-largest financial institution in 

the United States by total assets. 15 The objective of TIP was to invest funds on a case-by-case basis to strengthen the economy and protect American 

jobs, savings, and retirement security where the loss of confidence in a financial institution could result in significant 

market disruptions that threaten the financial strength of similarly situated financial institutions. The only institutions 

to receive funds under TIP were Citigroup and Bank of America. 16 AGP was created to provide guarantees for assets held by systemically significant financial institutions that faced a 

high risk of losing market confidence due in part to a portfolio of distressed or illiquid assets. 17 Although Bank of America’s loss sharing term sheet was negotiated in January 2009, a final agreement was never 

reached. On May 6, 2009, Bank of America requested termination of the agreement, which was terminated on 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 6

SIGTARP 11-005 September 29, 2011 

Treasury and Regulators Announced and Implemented the 

Supervisory Capital Assessment Program 

Despite the dramatic efforts 

undertaken by the Government to 

bolster the capital adequacy of 

financial institutions in late 2008 and 

early 2009, a Treasury report prepared 

at the time concluded that the market 

still lacked confidence in some of the 

nation’s largest financial institutions, 

impairing the ability of the overall 

financial system to lend. On 

February 10, 2009, Treasury and 

regulators jointly announced a 

Financial Stability Plan. Among other 

elements, the plan established a Financial Stability Trust, which was intended to 

strengthen confidence in financial institutions through, along with other 

initiatives, comprehensive stress tests of all banking institutions with 2008 yearend assets in excess of $100 billion, later named SCAP.18 

Applying the asset threshold, regulators identified the nation’s 19 largest bank 

holding companies for participation in SCAP. SCAP was designed to identify the 

potential losses, resources available to absorb losses, and the additional capital 

needed, if any, for each of the participating institutions.19 According to FRB, the 

19 institutions subject to SCAP collectively held two-thirds of the assets and more 

than half of the loans in the U.S. banking system. Of the 19 SCAP institutions, 18 

participated in one or more TARP programs.20 Seventeen SCAP institutions were 

CPP recipients, and one SCAP institution, GMAC, now known as Ally Financial 

Inc., received funding through TARP’s Automotive Industry Financing Program. 

Between February 2009 and April 2009, regulators performed stress tests on each 

of the 19 SCAP institutions. On April 24, 2009, FRB published details on the 

design and implementation of the SCAP process. According to the FRB 

 September 21, 2009. Bank of America agreed to pay $276 million to Treasury, $57 million to FRB, and $92 million to 

FDIC in exchange for the costs incurred by the Government and the benefits received by Bank of America through the 

announcement of its participation in the agreement. 18 In addition to establishing a Financial Stability Trust, the Financial Stability Plan also called for the establishment of a 

new Public-Private Investment Fund, a Consumer and Business Lending Initiative, new governance provisions and 

restrictions, Housing Support and Foreclosure Prevention, and a Small Business Community Lending Initiative. 

19 The 19 SCAP institutions were: American Express Company, Bank of America, BB&T, BNY Mellon, Capital One, 

Citigroup, Fifth Third Bancorp (“Fifth Third”), GMAC LLC (“GMAC”), Goldman Sachs, JP Morgan, KeyCorp, 

MetLife Inc. (“MetLife”), Morgan Stanley, PNC, Regions Financial Corporation (“Regions”), State Street, SunTrust 

Banks, Inc. (“SunTrust”), U.S. Bancorp, and Wells Fargo. 20 MetLife was the only SCAP institution to receive no direct support through TARP. However, on November 1, 2010, 

MetLife purchased the American Life Insurance Company from the American International Group, Inc., which 

received money from TARP’s Systemically Significant Failing Institutions Program. 

Supervisory Capital Assessment 

Program 

SCAP was a stress test of the nation’s 19 

largest financial institutions conducted in 

early 2009 by FRB in coordination with 

other regulators and Treasury. FRB 

designed SCAP to estimate losses, 

revenues, and reserve needs for these 19 

institutions under two macroeconomic 

scenarios – one that reflected a baseline 

projection and another that reflected a 

more severe recession than the baseline 

projections. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 7

SIGTARP 11-005 September 29, 2011 

description, between February and April, institutions were asked to project their 

credit losses and revenues for 2009 and 2010, as well as reserves necessary to 

cover expected losses in 2011, under two economic scenarios: baseline and more 

adverse. SCAP’s baseline economic scenario reflected a consensus expectation 

among professional forecasters on the depth and duration of the recession. FRB 

constructed the more adverse scenario from the baseline scenario, taking into 

account the historical track record of forecasters as well as their current 

assessments of uncertainty for unemployment and gross domestic product. By 

using a common set of economic scenarios and conceptual framework, regulators 

sought to apply a consistent and systematic approach across all 19 institutions. 

The more adverse economic scenario projected a recession that would be longer 

and more severe than the expectations of professional forecasters. SCAP 

institutions were required to have enough capital to meet target capital adequacy 

ratios under the more adverse scenario. The stress tests included a common 

equity component. By including this, Treasury and regulators acknowledged that 

markets had heavily discounted other types of capital and emphasized the 

importance of common equity to a bank’s capital base. A joint statement issued 

in May 2009 by Treasury, FRB, FDIC, and the Office of the Comptroller of the 

Currency (“OCC”) explained, “Common equity is the first element of the capital 

structure to absorb loss and offers protection to more senior parts of the capital 

structure. All else equal, more Tier 1 Common Capital gives a [bank holding 

company]21 greater permanent loss absorption capacity and a greater ability to 

conserve resources under stress by changing the amount and timing of dividends 

and other distributions.” 

SCAP established target capital ratios of at least 6% of risk-weighted assets in 

Tier 1 Capital and at least 4% in Tier 1 Common under the more adverse scenario 

projected through December 31, 2010. Tier 1 Capital is a measure used by 

regulators to identify an institution’s stable and readily available capital, and 

includes common equity and preferred equity elements. Tier 1 Common, a subset 

of Tier 1 Capital, includes only the common equity elements of Tier 1 Capital. 

According to regulators, for the purposes of SCAP, Tier 1 Common was 

calculated by subtracting preferred stock, qualifying trust preferred securities, and 

minority interests in an institution’s subsidiaries from the calculation of its Tier 1 

Capital.22

 

21 A bank holding company is a company that owns and/or controls one or more U.S. banks. 

22 In support of the stress tests, regulators asked SCAP institutions to provide documentation for their projected losses 

and resources, including projected income and expenses by major category, domestic and international portfolio 

characteristics, forecasting methods, and important assumptions. According to the terms of the program, institutions 

that did not meet the target capital adequacy ratios described above would have to submit a plan to raise sufficient 

capital by early November 2009 or accept additional capital through the Capital Assistance Program (“CAP”). CAP 

was created to give financial institutions access to additional capital as needed. However, on November 9, 2009, 

Treasury announced that CAP had been closed without making any investments under the program.
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 8

SIGTARP 11-005 September 29, 2011 

On May 7, 2009, FRB publicly released the results of the SCAP stress tests, 

announcing that the unprecedented nature of the program and the conditions that 

precipitated it led to the “unusual step of publicly reporting the findings of this 

supervisory exercise.” Nine of the 19 SCAP institutions, including eight CPP 

participants, were found to have sufficient capital to maintain target capital 

ratios.23 Ten SCAP institutions, of which nine were CPP recipients, were 

required to raise additional capital to meet SCAP requirements.24 Collectively, 

these 10 firms were $74.6 billion short of the capital requirements, with the vast 

majority of the shortfall pertaining to the institutions’ Tier 1 Common reserves.25 

According to FRB, these results indicated that the institutions’ capital structures 

were too strongly tilted away from common equity,26 and the institutions would 

therefore need to augment their capital base by raising additional common equity. 

FRB gave each of the 10 institutions that did not meet SCAP requirements 

30 days to submit a detailed capital plan for reaching target capital ratios, advising 

that wherever possible the institutions should actively seek to raise new capital 

from private sources. In addition to issuing common stock, capital actions such as 

converting preferred stock to common stock, selling assets, and limiting dividends 

and stock repurchases were also permitted means of meeting the target ratios. 

After submitting their plans, the remaining SCAP institutions had until 

November 9, 2009, to implement their plans and meet the target capital ratios. 

Table 1 on the following page shows the results of the SCAP stress tests. 

 

23 The nine institutions that were not required to raise additional capital to meet SCAP requirements were American 

Express, BB&T, BNY Mellon, Capital One, Goldman Sachs, JPMorgan, MetLife, State Street, and US Bancorp. 24 The 10 institutions required to raise additional capital to meet SCAP requirements were Bank of America, Citigroup, 

Fifth Third Bancorp, GMAC, KeyCorp, Morgan Stanley, PNC, Regions Financial, SunTrust, and Wells Fargo. With 

the exception of GMAC, which did not participate in CPP, each of the 10 SCAP institutions required to raise 

additional capital met the SCAP requirements by the November 9, 2009, deadline. Rather than accessing CAP to 

address the shortfall, GMAC received capital through the Automotive Industry Financing Program. 25 After taking into account completed or contracted capital actions and the effects of first quarter 2009 operating results. 26 The capital structure of some SCAP institutions relied heavily on preferred equity, which have debt-like characteristics 

and do not provide the same level of protection provided by common equity. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 9

SIGTARP 11-005 September 29, 2011 

TABLE 1 

SCAP RESULTS 

Institution 

TARP Program 

Participation 

Capital Raise 

Required by 

SCAP ($ bn) 

Bank of America CPP, TIP $33.9 

Wells Fargo CPP 13.7 

GMAC AIFP 11.5 

Citigroup CPP, TIP, AGP 5.5 

Regions CPP 2.5 

SunTrust CPP 2.2 

KeyCorp CPP 1.8 

Morgan Stanley CPP 1.8 

Fifth Third CPP 1.1 

PNC CPP 0.6 

American Express CPP 0.0 

BB&T CPP 0.0 

BNY Mellon CPP 0.0 

Capital One CPP 0.0 

Goldman Sachs CPP 0.0 

JPMorgan CPP 0.0 

State Street CPP 0.0 

U.S. Bancorp CPP 0.0 

MetLife Did not participate 0.0 

TOTAL $74.6 

Sources: FRB and Treasury. 

Note: In stress testing Citigroup, regulators counted as common stock the amount of 

private and Government preferred stock that Citigroup announced it would convert 

to common stock, though the conversion was not finalized until after the SCAP 

results were announced. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 10

SIGTARP 11-005 September 29, 2011 

June 2009 Guidance and Subsequent 

Repayments 

This section describes the development and the issuance by regulators in 

June 2009 of guidance for SCAP institutions seeking to exit TARP, as well as the 

repayments by certain SCAP institutions in June 2009. The eight institutions that 

met SCAP capital targets at the time of the stress tests, and a ninth that met the 

targets shortly thereafter, applied to repay Treasury and exit TARP. All nine 

were approved by FRB after issuing sufficient common equity and meeting the 

other requirements outlined in the June 2009 guidance. 

In early 2009, while Treasury was making additional TARP investments in some 

institutions, ARRA removed the three-year repayment waiting period governing 

CPP investments.27 A few TARP recipients sought to repay in the weeks 

following ARRA’s enactment, and during this time Treasury published basic 

guidance advising institutions to notify their primary regulator of their desire to 

repay TARP. Treasury also began meeting with regulators to discuss criteria and 

procedures for evaluating applications to repay and exit TARP.

Between February 2009 and June 2009, Treasury and FRB issued general 

guidance on TARP repayment, developed in coordination with FDIC, OCC, and 

OTS. In May 2009, Treasury published answers to frequently asked questions 

outlining the requirements and criteria that applied broadly to all 707 institutions 

that would participate in the program, and specified that additional requirements 

would apply only to SCAP institutions. FRB later elaborated on repayment 

guidance pertaining to SCAP institutions in June 2009 through guidance 

specifying that only institutions that met the SCAP target capital ratios and other 

criteria were eligible to repay and that each institution applying to do so would 

also have to demonstrate access to equity markets. Figure 1 on the following 

page is a timeline of key events related to the development of the repayment 

guidance.

 

27 ARRA, enacted on February 17, 2009, provided, “subject to consultation with the appropriate federal banking agency, 

if any, [Treasury] shall permit a TARP recipient to repay [the CPP investment] without regard to whether the financial 

institution has replaced such funds from any other source or to any waiting period.” 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 11

SIGTARP 11-005 September 29, 2011 

FIGURE 1 

DEVELOPMENT OF TARP REPAYMENT PROCEDURES AND GUIDANCE 

(FEBRUARY 2009 - JUNE 2009) 

Sources: Treasury, Public Law 111-5, FRB, and OCC. 

Treasury and Regulators Developed Repayment Guidance 

As the primary Federal regulator for all bank holding companies, FRB is 

responsible for supervising approximately 82% of all the institutions that 

participated in CPP,28 including each of the 17 SCAP institutions that 

participated. In this role, after coordinating with other regulators to evaluate 

repayment applications, FRB issues a recommendation to Treasury on whether or 

not each bank holding company should be allowed to repay. In doing so, FRB 

seeks consensus with other Federal regulators – FDIC, OCC, or previously OTS – 

if one or more of the regulators has a significant connection to the holding 

company’s largest subsidiary banks or thrifts, either through regulating a 

subsidiary or by insuring deposits. 

 

28 FRB supervises all bank and financial holding companies and state member banks, which collectively comprise 82% 

of the 707 institutions that participated in CPP. The remaining institutions are not subsidiaries of a bank or financial 

holding company and are not state member banks. Among those, responsibility for supervising and issuing a 

recommendation on CPP repayment to Treasury lies with FDIC for all non-member banks (9% of CPP participants); 

OTS for all thrifts and savings and loan institutions (8% of CPP participants); and OCC for all national banks (1% of 

CPP participants). 

FEB 2009 MARCH 2009 MAY 2009 JUNE 2009 

PROCESS FOR ALL CPP PARTICIPANTS PROCESS FOR SCAP INSTITUTIONS ONLY 

Feb 18, 2009 

At standing meeting among 

regulators and Treasury, 

repayment procedures are 

discussed, noting existing 

capital reduction processes 

Feb 26, 2009 

Treasury publishes a 

list of FAQs on CPP 

repayment, excluding 

information on 

repayment criteria 

Mar 4, 2009 

At standing meeting 

among regulators and 

Treasury, Treasury 

outlines logistics and 

regulators discuss 

process and criteria 

their agencies will use 

May 2009 

Treasury publishes a 

second list of FAQs 

on the repayment 

process, providing 

greater detail on 

criteria used by 

regulators 

Feb 17, 2009 

Congress enacts 

ARRA, which permits 

institutions to repay 

TARP funds subject to 

regulator approval 

Feb 10, 2009 

Treasury announces that 

regulators will conduct a 

“stress test” of 19 of the 

largest bank holding 

companies under the 

Supervisory Capital 

Assessment Program 

(“SCAP”) 

May 7, 2009

Regulators release 

the results of the 

SCAP stress tests

June 1, 2009 

FRB publicly 

announces guidance 

outlining SCAP 

repayment criteria 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 12

SIGTARP 11-005 September 29, 2011 

On March 17, 2009, FRB disseminated a template of a decision memorandum 

developed to summarize evaluations of CPP repayment requests. The template 

specifically instructs Federal Reserve Banks to consult with the regulators of the 

institution’s subsidiary banks. Other criteria listed in FRB’s decision memo 

template include the institution’s current capital ratios and summary financial 

ratings; its forecasted condition once funds are repaid; and the appropriateness of 

the institution’s capital planning processes.29 

In May 2009, as FRB announced the results of the SCAP stress tests, some SCAP 

institutions requested to repay Treasury’s CPP investment. Treasury’s repayment 

guidance published that month stated that all SCAP institutions “must have a 

post-repayment capital base at least consistent with the SCAP buffer,30 and must 

be able to demonstrate its financial strength by issuing senior unsecured debt for a 

term greater than five years not backed by FDIC guarantees, in amounts sufficient 

to demonstrate a capacity to meet funding needs independent of government 

guarantees.” These requirements prohibited institutions from using FDIC’s 

Temporary Liquidity Guarantee Program (“TLGP”)31 to demonstrate their ability 

to issue long-term debt. 

On March 4, 2010, Treasury told the Congressional Oversight Panel (“COP”), 

“After the stress test results were announced on May 7, 2009, Treasury officials 

encouraged [FRB, FDIC, and OCC] to develop and articulate the conditions that a 

bank would have to satisfy in order to be permitted to repay TARP assistance. 

Treasury urged the regulators to develop and communicate any such conditions or 

standards, so that banks wishing to repay could decide whether, how and when 

they could meet the standards.” According to Treasury Secretary Timothy F. 

Geithner, he told colleagues at Treasury and FRB “that it was important that they 

lay out a clear set of criteria for repayment as soon as possible and that we 

maximize incentives for the firms to go out and raise private capital on as large a 

scale as possible.” Treasury, however, also told COP that while it “was asked for 

and offered its opinions on proposed standards, the standards were determined by 

the regulators and Treasury deferred to their judgment as to what should be 

 

29 See Appendix E for a template of the FRB Redemption Request Decision Memo for CPP repayment evaluations. 

30 The term “SCAP buffer” is shorthand for the requirement that SCAP institutions be able to maintain capital ratios of at 

least 6% of risk-weighted assets in Tier 1 Capital and at least 4% in Tier 1 Common Capital under the more adverse 

scenario projected through December 31, 2010. 31 The Temporary Liquidity Guarantee Program (“TLGP”) was established in October 2008 to address “disruptions in 

the credit market, particularly the interbank lending market, which reduced banks’ liquidity and impaired their ability 

to lend. The goal of TLGP is to decrease the cost of bank funding so that bank lending to consumers and businesses 

will normalize.” The program does not rely on the taxpayer or the deposit insurance fund, but is entirely funded by 

industry fees. Participating institutions may issue debt under TLGP’s Debt Guarantee Program, which provided an 

FDIC guarantee of newly issued senior unsecured debt of participating insured depository institutions and other 

eligible entities. New guarantees were issued until October 31, 2009, with the debt being guaranteed until “the earliest 

of the opt-out date, the maturity of the debt, the mandatory conversion date for mandatory convertible debt, or 

December 31, 2012.” 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 13

SIGTARP 11-005 September 29, 2011 

required.” Secretary Geithner similarly told SIGTARP that Treasury “left the 

principal verdict with [FRB].” 

FRB Issued Guidance to SCAP Institutions in June 2009 

On June 1, 2009, FRB issued a press release outlining the criteria for SCAP 

institutions to redeem Treasury’s TARP investment. FRB’s release stated that 

any SCAP institution “seeking to redeem U.S. Treasury capital must demonstrate 

an ability to access the long-term debt markets without reliance on [TLGP] and 

must successfully demonstrate access to public equity markets.” The release set 

forth other factors that would be considered by FRB, including whether the SCAP 

institutions would be able to maintain capital levels consistent with supervisory 

expectations. Finally, the release provided that SCAP institutions must have a 

robust longer-term capital assessment and management process geared toward 

achieving and maintaining a prudent level and composition of capital 

commensurate with the company’s business activities and firm-wide risk profile. 

A senior FRB official told SIGTARP that the requirement to demonstrate access 

to equity markets meant that the institution had to issue additional common stock 

prior to repaying and exiting TARP. According to the official, this requirement 

was an essential condition of CPP repayment and a market test of each firm’s 

viability. In determining the appropriate size of the common stock issuance 

required for each institution, FRB considered whether the issuance would 

generate enough capital for the institution to remain above SCAP target capital 

ratios after removing TARP capital. 

FDIC and OCC played a minor role in reviewing the June 2009 repayments, in 

part because regulators viewed these repayments as less controversial and less 

complicated than later repayments. Senior-level OCC officials said that they were 

given a chance to object to repayment proposals, but had no conversations 

concerning the size of the common stock issuances required by FRB and voiced 

no objections to them. A senior-level FDIC official said that his agency provided 

input to FRB on the repayments, but that the input was informal. Additionally, 

FRB did not consult with OTS at all on the repayment application submitted by 

American Express, though OTS regulated the company’s largest subsidiary. 

According to an OTS official, this was an oversight on the part of FRB, and 

representatives from the two agencies later met to ensure it did not happen with 

future repayment applications. American Express is the only SCAP institution 

with a large subsidiary that was regulated by OTS. 

Repayments by SCAP Institutions in June 2009 

The eight CPP institutions found to have met the SCAP stress test requirements 

became eligible to repay TARP immediately after the June 2009 guidance was 

issued. Each institution applied to do so in the month leading up to the issuance 

of the guidance. These eight institutions – American Express, BB&T, BNY 

Mellon, Capital One, Goldman Sachs, JPMorgan, State Street, and U.S. Bancorp 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 14

SIGTARP 11-005 September 29, 2011 

– were soon joined by a ninth – Morgan Stanley – which raised enough capital to 

become eligible shortly after the SCAP results were announced and also applied 

to repay. 

All nine of these institutions were approved for TARP repayment and exited 

TARP on June 17, 2009, repaying a combined total of $66.7 billion to Treasury.32 

The remaining eight institutions were required to wait, at a minimum, until they 

raised enough capital to meet SCAP requirements and met the other criteria set 

forth in the June 2009 guidance before they could apply to repay and exit 

TARP.33 Then-FDIC Chairman Sheila Bair told SIGTARP that the stronger 

institutions, in terms of capital adequacy, exited in the first round of SCAP 

repayments. 

Prior to exiting TARP, each institution that repaid in June 2009 issued new 

common equity in response to the requirement that they demonstrate access to 

equity markets. Table 2 below shows the amount of common stock issued in 

connection with TARP repayment by each institution that repaid on 

June 17, 2009. 

TABLE 2 

COMMON STOCK ISSUED IN CONNECTION WITH TARP 

EXIT IN JUNE 2009 

Institution 

Common 

Stock 

Issued ($bn) 

TARP 

Repayment 

($bn) 

Morgan Stanley 7.0 10.0 

JPMorgan 5.8 25.0 

Goldman Sachs 5.8 10.0 

U.S. Bancorp 2.8 6.6 

State Street 2.3 2.0 

BB&T 1.7 3.1 

Capital One 1.5 3.6 

BNY Mellon 1.4 3.0 

American Express 0.5 3.4 

Sources: Treasury, FRB, and the Securities and Exchange Commission. 

Treasury, as well as FRB, emphasized the importance of replacing TARP capital 

with some amount of private capital. Secretary Geithner told SIGTARP that 

putting pressure on firms to raise private capital was part of “a forceful strategy of 

raising capital early.” According to the Secretary, “You can’t force private capital 

to come in, but you can go to firms and ask them to raise it... We thought the 

 

32 Northern Trust Corporation, a large financial institution that did not participate in SCAP, also exited TARP on 

June 17, 2009. 33 These eight were Bank of America, Citigroup, Fifth Third Bancorp, KeyCorp, PNC Financial Services, Regions 

Financial, SunTrust, and Wells Fargo. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 15

SIGTARP 11-005 September 29, 2011 

American economy would be in a better position if [the firms] went out and raised 

capital... It doesn’t matter whether [the firms] thought it was in their interest. We 

thought it was in our interest.” FRB Governor Daniel Tarullo34 told SIGTARP 

that FRB would not have allowed the institutions to “repay TARP without them 

having enough capital to absorb losses.” He added that the common stock the 

institutions were required to issue resulted in “a big upgrade in their capital 

position.” 

According to FRB analysis of the June 2009 repayments, the projected capital 

ratios of each institution remained above SCAP targets after CPP funds were 

removed from their capital structure. FRB officials explained to SIGTARP that, 

using data collected through the recently completed stress tests, they would “back 

up” each institution’s projected capital ratios by subtracting TARP capital to aid 

in estimating the amount each would have to raise through common equity 

issuance. An FRB official also noted that some institutions may have elected to 

issue additional common stock to take advantage of more receptive equity 

markets. 

TARP funds added to the preferred capital base of each recipient, and therefore, 

TARP repayment altered the recipient’s capital structure. Generally, the 

repayments replaced TARP preferred capital with a smaller amount of higher 

quality common capital. For most institutions, the repayments resulted in a 

reduction in Tier 1 Capital – which includes both preferred and common equity 

elements – because when an institution exits TARP, it redeems the TARP 

preferred stock from Treasury and removes it from its capital structure. However, 

because regulators required banks to raise some amount of new common stock to 

exit TARP, the repayments generally increased the amount of Tier 1 Common – 

which includes only common equity elements – held by the institutions. 

For SCAP institutions repaying in June 2009, TARP repayment lowered an 

institution’s Tier 1 Capital ratio by an average of 114 basis points35 (from 11.06% 

to 9.91%) as projected by FRB through 2010. However, FRB also projected that 

Tier 1 Common ratios increased by an average of 133 basis points (from 6.57% to 

7.90%) due to the new common stock each repaying institution was required to 

issue.36 According to FRB’s projections, two institutions – State Street and 

BB&T – would see an increase of 300 basis points in their Tier 1 Common ratios 

from issuing common stock and exiting TARP. Figure 2 shows the net change in 

projected Tier 1 Capital and Tier 1 Common ratios for the nine SCAP institutions 

that repaid in June 2009. 

 

34 Upon taking office on January 28, 2009, Governor Tarullo became Chairman of FRB’s Committee on Bank 

Supervision. 35 A basis point represents 1/100 of a percent. For example, an increase from 5.25% to 5.50% would be an increase of 

25 basis points. 36 The average change in FRB’s projected Tier 1 Capital and Tier 1 Common ratios for institutions that repaid in 

June 2009 was determined by calculating a simple average of the institutions’ projected ratios. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 16

SIGTARP 11-005 September 29, 2011 

FIGURE 2 

NET CHANGE IN PROJECTED CAPITAL RATIOS FROM TARP REPAYMENT BY SCAP INSTITUTIONS 

REPAYING IN JUNE 2009 

Source: SIGTARP analysis of FRB data. 

Note: American Express’ projected Tier 1 Common ratio under SCAP conditions remained unchanged after TARP repayment. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 17

SIGTARP 11-005 September 29, 2011 

November 2009 Clarifying Guidance 

This section details the events leading to the revision of the TARP repayment 

guidance for remaining SCAP institutions by FRB on November 3, 2009. 

Figure 3 shows the timeline of key events related to the development of revised 

TARP repayment guidance for SCAP institutions. 

In the months following the SCAP stress tests and the June 2009 repayments, 

each of the eight SCAP institutions that remained in CPP brought their capital 

ratios into compliance with the SCAP capital requirements through common stock 

issuance and conversion, asset sales, and other capital actions. Bank of America 

and Wells Fargo began talking to the press in early September 2009 about their 

plans to repay TARP. Over the following weeks, Federal banking regulators and 

Treasury began to discuss revising the criteria for remaining SCAP institutions to 

repay and exit TARP, culminating in FRB’s issuance of revised guidance on 

November 3, 2009. 

FIGURE 3 

DEVELOPMENT OF REVISED TARP REPAYMENT GUIDANCE FOR SCAP INSTITUTIONS 

(SEPTEMBER 2009 – NOVEMBER 2009) 

Sources: Treasury, FRB, FDIC, The Wall Street Journal, and Bloomberg.

Regulators Discussed Revising the Repayment Guidance; Treasury 

Weighed in on the Criteria 

In October 2009, FRB led discussions with FDIC, OCC, and Treasury to revise 

the repayment guidance for the eight SCAP institutions that remained in TARP. 

With the support of Secretary Geithner, who said that part of Treasury’s job “was 

to make sure there was more consistency and consensus” regarding the repayment 

guidance, regulators discussed specifying the minimum amount of common 

equity that remaining institutions would have to raise before being allowed to 

repay TARP immediately. In addition to seeking consistency, Treasury was also 

concerned that to avoid diluting the holdings of common shareholders, some 

SEPTEMBER 2009 OCTOBER 2009 NOVEMBER 2009 

PROCESS FOR SCAP INSTITUTIONS ONLY 

Nov 3, 2009 

FRB issues 

confidential revised 

guidance with 1-for2 expedited 

repayment option 

Oct 2009 

FRB leads 

discussions with 

FDIC, OCC and 

Treasury to revise 

repayment guidance 

for remaining SCAP 

institutions 

Sept 1, 2009 

Media reports that 

BAC and WFC are 

seeking to repay 

TARP 

Oct 15, 2009 

Treasury sends FRB 

its own repayment 

analysis for 

remaining SCAP 

institutions 

Oct 20 & 23, 2009 

Treasury hosts 

meetings with heads 

of Federal banking 

agencies to discuss 

revised guidance 

Nov 24, 2009

TARP repayment 

plans due to FRB 

per revised 

guidance
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 18

SIGTARP 11-005 September 29, 2011 

institutions might decide to hold on to TARP capital and repay slowly through 

earnings, rather than issue new common equity.37 Secretary Geithner told 

SIGTARP, “We did sometimes go to the firms themselves and told them they 

needed to go raise as much as capital and as soon as possible, to prove to people 

that they were able to repay the government and to put the institutions back in 

private hands.” 

Regulators sought to establish guidance that would help them to gain comfort 

with expedited repayments. FRB Governor Tarullo told SIGTARP that since the 

stress tests judged the remaining institutions to be unable to maintain sufficient 

capital in adverse conditions, it was necessary to revise the June guidance to 

provide additional assurance that they would be viable after TARP repayment. 

By October 15, 2009, FRB arrived at such a framework, proposing to offer 

remaining SCAP institutions two paths to full repayment: 1) repay upon 

completion of supervisory review of the firm’s internal capital assessment and 

planning process (or longer-term capital plans);38 or 2) expedite repayment by 

raising at least 50% of outstanding TARP funds in common equity. The latter is 

referred to as the 1-for-2 provision because the final version of the provision 

required firms seeking immediate repayment to raise at least $1 in common stock 

for every $2 they repaid in TARP funds.39 Former FRB Vice Chairman Donald 

Kohn told SIGTARP that there were sound public policy reasons for including the 

1-for-2 provision, noting that “the sooner the banks demonstrated they could go 

out to the market and get out from under TARP, the sooner confidence could be 

restored.” 

Regulators developed the 1-for-2 provision based on their estimate that it would 

align the Tier 1 Capital and Tier 1 Common ratios of the remaining institutions 

with those of the institutions that exited TARP in June 2009. FRB Governor 

Tarullo told SIGTARP that during the financial crisis, it became clear that the 

markets cared about common equity, not Tier 1, and that the 1-for-2 provision 

provided the “right order of magnitude” to position the remaining banks to absorb 

potential future losses. An FRB official noted the similarity between the 

proposed guidelines and the requirements of earlier SCAP repayments, writing 

that it was “consistent with what we did for the first nine.” FRB officials 

discussed how to measure common equity raised toward meeting the 1-for-2 

provision. They considered crediting common equity raised in response to the 

SCAP stress tests that exceeded minimum capital targets, crediting earnings to 

 

37 Issuing new common equity dilutes the holdings of existing common shareholders by increasing the number of shares 

outstanding and reducing the ownership stake of each share of common stock. 38 While firms that exited in June were also required to submit their longer-term capital plans to FRB, supervisory review 

and acceptance of the plans was not a prerequisite for repayment approval for those firms. 

39 Regulators sometimes also referred to the 1-for-2 provision as a “safe harbor” for exiting TARP. However, it was not 

a safe harbor in that it did not guarantee that an institution would be allowed to repay TARP. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 19

SIGTARP 11-005 September 29, 2011 

absorb losses in excess of expectations,40 or crediting the sale of assets. Treasury 

developed its own repayment analysis for the remaining SCAP institutions around 

that time. Treasury’s analysis also envisioned a common equity raise of 

approximately 50%, or 1-for-2, of the amount the institution would repay, with 

certain institutions required to raise additional capital above that minimum. 

Despite the similarities between the proposals developed by FRB and Treasury, 

regulators had yet to agree on revised repayment guidance for the remaining 

SCAP institutions. At issue was whether to count capital that was not raised 

through equity issuances, as well as the amount of capital above the 1-for-2 

minimum that certain institutions would have to raise. 

Treasury Facilitated Meetings with Regulators to Finalize the 

Revised Guidance 

A senior Treasury official told SIGTARP that during this time, some remaining 

SCAP institutions were receiving conflicting messages from regulators about the 

new repayment requirements, and the conflicting messages were beginning to sow 

uncertainty in the markets. According to Secretary Geithner, “there had to be 

clarity on the guidance that could be applied evenly to firms and that was quickly 

understandable.” To that end, Secretary Geithner hosted at least two meetings 

with the heads of Federal banking agencies in late October 2009 to discuss the 

repayment guidance. Secretary Geithner told SIGTARP that the meetings were 

part of a “constant conversation” about the repayment guidance. 

During the meetings, FDIC pushed for strict wording that would require 

institutions seeking expedited repayment to meet the 1-for-2 ratio entirely by 

issuing new common stock. FDIC and other regulators also acknowledged early 

on that certain institutions would be required to raise additional capital beyond 

that minimum. Citigroup, for example, might need to raise 100% of Treasury’s 

preferred stock investment, or 1-for-1, to justify an expedited repayment of TIP 

funds. Then-Chairman Bair told SIGTARP that FDIC reluctantly agreed to the 

1-for-2 ratio as a minimum requirement for most remaining institutions, but 

would have preferred the more stringent 1-for-1 ratio to apply to all remaining 

institutions. She added that FDIC ultimately found the 1-for-2 provision 

reasonable because institutions that met it would increase the quality of their 

capital, and in the process, receive market validation of their common stock. 

According to then-Chairman Bair and a senior FDIC official, there was specific 

agreement among regulators that all capital raised toward the 1-for-2 provision 

would consist entirely of newly issued common stock, and not asset sales or 

employee stock issuances. 

 

40 Specifically, excess pre-provision net revenue (“PPNR”). PPNR is net interest income, fees and other non-interest 

income, net of non-credit-related expenses. It represents the earnings capacity that can be applied to capital or loan 

losses and therefore, is a resource available to a firm to absorb some of its estimated losses under the SCAP scenarios. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 20

SIGTARP 11-005 September 29, 2011 

However, according to then-Comptroller of the Currency John Dugan, there was 

no formal agreement to a firm 1-for-2 requirement or that it be composed entirely 

of newly issued common stock, and that OCC expressed concerns about such a 

rigid requirement. A senior OCC official told SIGTARP that applying such a 

requirement to all remaining institutions ignored other considerations, such as 

earnings accrued in the interim, equity already raised in excess of SCAP 

requirements, and “the reality of the bank’s balance sheet.” Further, according to 

then-Comptroller Dugan, he “was very worried about the prospect of a capital 

raise that failed to achieve an unduly high number and what that would do to 

confidence in particular banks and the banking system.” He explained to 

SIGTARP that given the fragile state of the markets at the time, he was concerned 

that the 1-for-2 provision in particular was too high a bar for institutions to meet if 

it consisted only of new equity issuance and did not credit other forms of equity 

raising, including asset sales. He thought the goal should be to maximize the 

amount of equity that could be raised, while not setting the bar so high that it 

could not be achieved successfully. The difficulty in a 1-for-2 issuance would 

become an important concern as regulators deliberated over Bank of America’s 

repayment proposals the following month. Former FRB Vice Chairman Kohn 

summed up each regulator’s perspective, telling SIGTARP that while FDIC 

wanted the 1-for-2 to be met entirely with new common stock, “the OCC was 

much more relaxed than that, and [FRB] was a little more relaxed than the FDIC.” 

While OCC, FDIC, and Treasury were all given an opportunity to weigh in on the 

revisions, FRB, as the primary Federal regulator of each SCAP institution, was 

ultimately responsible for issuing the guidance. According to FRB Governor 

Tarullo, this arrangement was beneficial from a public administration perspective 

because there were multiple, sometimes conflicting, policy goals associated with 

the repayment of TARP funds, and FRB was best suited to account for all policy 

considerations. He told SIGTARP that FDIC was understandably concerned 

about its exposure to institutions through TLGP and the deposit insurance fund, 

and that OCC tends to look more narrowly at specific national banks with less of 

a macro perspective. Treasury’s policy goal, according to Governor Tarullo, was 

to get Government ownership ramped back. Governor Tarullo added that “you 

want the decision maker to be someone who has an interest in all of the 

conflicting policy aims.” With respect to TARP repayment, that entity was FRB. 

He explained that it was a two-key process. First, FRB had to agree to let the 

bank repay, and second, Treasury had to agree to be repaid, but the second key 

would turn automatically if FRB turned the first key. Former FRB Vice 

Chairman Kohn, who acted as a liaison to Treasury on repayment discussions, 

told SIGTARP that he kept Treasury apprised of repayment discussions because 

as the supplier of TARP capital, Treasury wanted to know the terms under which 

it would be repaid. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 21

SIGTARP 11-005 September 29, 2011 

FRB Issued November 2009 Guidance with a “1-for-2” Repayment 

Option 

On November 3, 2009, FRB issued the guidance non-publicly to the eight SCAP 

institutions that had yet to exit TARP. In doing so, FRB included the strict 

1-for-2 provision for expedited repayment developed by FRB and advocated by 

FDIC, and required each remaining institution to submit a detailed TARP exit 

plan within 21 days. Specifically, the guidance allowed institutions to either 

expedite repayment by issuing $1 of new common equity for every $2 of TARP 

repaid41 or to wait until supervisors completed their review of the institution’s 

longer-term capital plan. The expedited option allowed firms to apply the 1-for-2 

provision toward a partial repayment, but did not address the use of asset sales or 

other means of generating capital beyond issuing new common stock. According 

to one FRB official, “We designed the [1-for-2] with an option for a partial 

[repayment] specifically to allow a firm to begin getting out while we do the 

capital assessment work that needs to be done.” The guidance also provided that 

institutions may be allowed to repay subject to the 1-for-2 provision. According 

to regulators, the caveat was included to suggest that some of the remaining 

SCAP institutions would need to raise additional capital. Similar to the guidance 

issued in June 2009, the November 2009 guidance also addressed the institutions’ 

ability to lend, their access to equity markets, their ability to issue debt, their 

capital adequacy, and their ability to serve as a source of financial and managerial 

strength to subsidiaries. 

Figure 4 summarizes the SCAP-specific repayment guidance issued by Treasury 

and FRB from May 2009 through November 2009, which are reproduced in full 

in Appendix C and Appendix D, respectively. 

 

41Issuing new common equity typically refers to offering new common stock in equity markets. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 22

SIGTARP 11-005 September 29, 2011 

FIGURE 4 

SUMMARY OF TARP REPAYMENT GUIDANCE TO SCAP INSTITUTIONS 

Sources: Office of Financial Stability (“OFS”) and FRB. 

The 1-for-2 provision placed stricter repayment standards on the remaining SCAP 

institutions compared to those that exited in June 2009. Former FRB Vice 

Chairman Kohn told SIGTARP that regulators “wanted to toughen it up a little 

because the next set of banks were almost by definition less strong than the first 

set. Otherwise, they would’ve repaid right away,” noting that the remaining 

May 2009 – Treasury FAQs on CPP Repayment

In addition to demonstrating to regulators their overall soundness, capital adequacy, and

ability to lend, the 19 institutions that were subject to the SCAP stress tests must meet the

following criteria in order to repay CPP:

1. Maintain a post‐repayment capital base at least consistent with the SCAP buffer; and

2. Demonstrate their financial strength by issuing senior unsecured debt for a term greater than

five years not backed by FDIC guarantees.

June 1, 2009 – FRB Guidance for Repayment by SCAP Institutions

A SCAP institution will become eligible to repay TARP only once it has met the SCAP capital

requirements and submitted a description of its internal capital assessment, planning, and

management processes. The following will inform the decision‐making process for the 19

institutions that participated in SCAP:

1. Whether the institution can repay and remain in a position to fulfill its role as an intermediary

that facilitates lending to creditworthy households and businesses;

2. Whether, after repayment, the institution will be able to maintain capital levels consistent with

the SCAP buffer, supervisory expectations, industry norms and historical levels for the firm,

including its own internal capital targets;

3. Whether the institution has demonstrated access to common equity through public issuance in

equity capital markets and demonstrated the ability to raise a significant amount of unsecured

senior debt without reliance on Government guarantees;

4. Whether the institution and its bank subsidiaries will be able to meet obligations to

counterparties, as well as ongoing funding requirements; and

5. Whether the institution will be able to continue to serve as a source of financial and managerial

strength and support to its subsidiary bank(s) after repayment.

November 3, 2009 – FRB Clarifying Guidance for Repayment by SCAP Institutions

In addition to the requirements outlined in the June guidance, remaining SCAP institutions

may be permitted to redeem TARP capital subject to:

1. Submitting a plan detailing how the institution plans to repay TARP capital; and

2. Satisfying one of the following conditions. Either:

a. Issue new common equity worth 50% of the amount of TARP capital the institution is

seeking to repay; or

b. Wait until supervisors have completed a review of the institution’s longer‐term capital

planning processes.
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 23

SIGTARP 11-005 September 29, 2011 

banks “demonstrated that they needed more oversight.” An FRB official also 

noted that 1-for-2 was not an arbitrarily selected ratio, and that the stress tests 

conducted earlier in the year provided FRB with insight on the amount of capital 

required to secure the remaining SCAP institutions in worse-than-expected 

market conditions. These assertions are supported by FRB analysis conducted as 

the guidance was being developed. The analysis showed that the remaining 

SCAP institutions’ Tier 1 Common ratios – the indicator markets and regulators 

were primarily concerned with – were significantly lower than those of the 

institutions that exited in June 2009. 

Although the November 2009 guidance specified that the remaining SCAP 

institutions were required to issue at least half (1-for-2) of the amount they sought 

to repay in common stock, regulators later approved repayments under terms that 

included somewhat smaller offerings, supplemented with capital raised through a 

combination of proceeds from other sources, such as asset sales. Senior FDIC 

officials told SIGTARP that the terms of some repayments ran contrary to 

language specifying that the required capital raise would consist only of new 

common stock. Then-Chairman Bair expressed frustration over the reliance on 

asset sales and employee stock issuances to meet the 1-for-2, referring to those 

sources of capital as “gimmicks,” in part because unlike new common stock they 

did not provide market validation of the firm’s strength. Regulators ultimately 

decided to relax the terms of the existing guidance to allow asset sales and other 

forms of capital count toward the 1-for-2, but to count those types of capital less 

than new common stock. 

As of June 30, 2011, seven institutions had repaid TARP funds pursuant to the 

November 2009 guidance: Bank of America repaid CPP and TIP in 

December 2009; Citigroup repaid TIP in December 2009; Wells Fargo repaid 

CPP in December 2009; PNC repaid CPP in February 2010; Fifth Third repaid 

CPP in February 2011; and both KeyCorp and SunTrust repaid CPP in 

March 2011. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 24

SIGTARP 11-005 September 29, 2011 

Bank of America’s TARP Exit 

To exit TARP immediately in compliance with the 1-for-2 provision outlined in the 

November 2009 guidance, Bank of America was required to issue $22.5 billion in 

new common equity before being allowed to repay its $45 billion TARP preferred 

stock. 

Despite the plain terms of the repayment guidance, from November 4, 2009, 

through December 1, 2009, Bank of America submitted 11 repayment proposals 

(10 for full repayment and one for partial repayment), with each falling short of 

the 1-for-2 provision and including other sources of capital in place of newly 

issued common stock. There was considerable discussion among the regulators 

and Treasury regarding how much common stock Bank of America could 

successfully issue and whether partial repayments and an exit from TARP in 

multiple stages could be a viable alternative to a full repayment and an immediate 

exit. Bank of America was adamant that it needed to repay in full and 

immediately exit TARP, citing concerns including market perception and 

restrictions established by the Special Master for TARP Executive Compensation. 

As the negotiations progressed, FRB, OCC, and Treasury became increasingly 

more comfortable with permitting other sources of capital as a substitute for 

meeting the 1-for-2 provision in the repayment guidance, while FDIC pushed 

hard to maintain the strict requirement, as originally established, that the 1-for-2 

provision apply only to new common stock. Figure 5 shows the timeline of key 

events related to Bank of America’s repayment and exit from TARP. 

 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 25

SIGTARP 11-005 September 29, 2011 

FIGURE 5 

KEY TARP REPAYMENT EVENTS FOR BANK OF AMERICA (BAC) 

Sources: SIGTARP, OFS, FRB, OCC, and Bank of America. 

Bank of America approached FRB and Treasury early in fall 2009, before the 

November 2009 guidance was issued, to inquire about repaying Treasury’s 

investment and exiting TARP. On September 11, 2009, then-CEO Kenneth 

Lewis met with Secretary Geithner in Washington at the CEO’s request. 

According to Mr. Lewis, he told Secretary Geithner that Bank of America wanted 

to begin repayment discussions, and the Secretary replied that Bank of America 

would need to “raise a lot of equity” to exit TARP. 

On October 28, 2009, senior executives at 

Bank of America presented three potential 

TARP repayment scenarios to its board of 

directors. Two of the three scenarios 

envisioned a partial TARP repayment 

during the fourth quarter of 2009 and a 

phased exit from TARP. The third 

scenario envisioned repaying the full 

$45 billion in preferred stock and 

immediately exiting TARP during the 

fourth quarter of 2009. To provide some 

of the capital for the full repayment, Bank of America proposed to issue $8 billion 

in new common stock and $4 billion in trust preferred securities. During this 

SEP 2009 OCT 2009 NOV 2009 DEC 2009 JAN 2010 FEB 2010 

Bank of America Corp. (BAC) 

Nov 2009 Guidance 

Nov 3, 2009 

FRB issues nonpublic revised 

guidance with 1-for2 expedited 

repayment option 

Nov 24, 2009 

Deadline for 

repayment plans 

required by FRB 

guidance 

Sep 2009 

BAC notifies FRB of 

its desire to repay 

TARP in Oct 2009 

Oct 28, 2009 

BAC’s Board 

considers TARP 

repayment scenarios, 

including full $45B 

and a partial $32.5B; 

Proposes $8B 

issuance Dec 1-2, 2009 

BAC submits 11th and 

final proposal; FRB 

approves on 12/2; BAC 

announces equity 

offering 

> $19.3B ISSUANCE* 

Dec 9, 2009 

BAC repays $45B 

and exits TARP 

Note: Issuance occurred after announcement and 

was completed at a later date 

*BAC issued common equivalent securities, 

which converted to common stock on Feb 24, 2010 

Nov 20, 2009 

FRB prepares to 

approve BAC’s 

proposal for $14B 

issuance; 

FDIC opposes 

Trust Preferred Securities 

Securities with both equity and debt 

characteristics, created by establishing a 

trust and issuing debt to it. 

Pursuant to the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, trust 

preferred securities issued after 

May 19, 2010, by a bank or thrift holding 

company with more than $500 million in 

assets will no longer count as Tier 1 

Capital. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 26

SIGTARP 11-005 September 29, 2011 

meeting, Bank of America’s board formally authorized senior executives to hold 

discussions with the Government about repaying Treasury and exiting TARP. 

Bank of America Submitted Proposals to Exit TARP Immediately 

After FRB Issued Revised Guidance in November 2009 

The guidance FRB issued on November 3, 2009, required Bank of America to 

issue $22.5 billion in new common stock to be eligible for full and immediate 

TARP repayment under the 1-for-2 provision.42 Through this provision, Bank of 

America could also repay in part and exit TARP in multiple stages. Alternatively, 

the institution could wait and repay TARP once supervisors completed a 

satisfactory review of the bank’s longer-term capital plans. 

On November 4, 2009, the day after 

FRB issued the revised guidance, 

Bank of America indicated its 

preference to repay TARP in full and 

immediately exit. A former Bank of 

America executive told SIGTARP that 

repaying in full and exiting TARP immediately was preferable because a partial 

repayment would not address the uncertainty in the market associated with the 

bank’s continued participation in TARP. 

Rather than seek approval through the 1-for-2 provision, however, Bank of 

America asked FRB to expedite its review of Bank of America’s longer-term 

capital plan and, subject to satisfactory completion of that review, allow the bank 

to repay its full TARP investment (including warrants) and exit TARP 

immediately. To fund the repayment, Bank of America proposed to issue 

$9.25 billion in new common stock, $4 billion in trust preferred securities, and 

use $33.75 billion in existing liquidity. However, because Bank of America’s 

initial repayment proposal failed to improve the bank’s capital position, FRB 

rejected it. 

During the week of 

November 9, 2009, FRB and OCC 

examiners conducted an abridged 

review to gauge Bank of America’s 

internal capital assessment and 

planning processes. Examiners 

concluded that while the bank had improved these processes, any TARP 

repayment proposal outside of the 1-for-2 provision would need to be 

 

42 A $22.5 billion public issuance and repayment of $45 billion in TARP funds represents $1 of new common stock for 

every $2 repaid, the minimum ratio required by the guidance. Then-Chairman Bair told SIGTARP that although it was 

not discussed during meetings about the guidance, FDIC’s view was that Bank of America would be required to raise 

somewhere between 1-for-2 and 1-for-1. 

Bank of America Proposal 1 

(Nov. 4, 2009) 

• $9.25 billion common issuance 

• $4.0 billion trust preferred securities 

Bank of America Proposal 2 

(Nov. 12, 2009) 

• $12.7 billion common issuance 

• $5.0 billion trust preferred securities 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 27

SIGTARP 11-005 September 29, 2011 

accompanied by a more complete review by FRB. According to Bank of 

America, regulators indicated that a complete review of the bank’s longer-term 

capital plans could take up to four months. Instead, Bank of America prepared a 

second repayment proposal, which sought expedited repayment through the 1-for2 provision. On November 12, 2009, Bank of America submitted the proposal to 

FRB, requesting to fully repay the $45 billion in TARP funds and immediately 

exit by issuing $12.7 billion in common stock, $5 billion in trust preferred 

securities, and using existing liquidity. The terms proposed still fell short of the 

requirements established under the 1-for-2 provision. 

On November 13, 2009, FRB received two new repayment proposals from Bank 

of America – one requesting a full $45 billion repayment and immediate TARP 

exit, and the other proposing a partial repayment of $35 billion followed by an 

exit from TARP in stages. The latter proposal hinged on Treasury committing to 

remove Bank of America’s exceptional assistance designation43 after the partial 

repayment. The exceptional assistance designation imposed additional 

restrictions on the bank, including subjecting it to heightened executive 

compensation restrictions under the purview of the Special Master for TARP 

Executive Compensation. Bank of America executives told SIGTARP that 

removal of this designation, and the accompanying executive compensation 

restrictions, was just one of many factors influencing their decision to seek 

repayment. FRB viewed both proposals as insufficient because they failed to 

meet the 1-for-2 provision. 

 

43 Institutions deemed by Treasury to have received exceptional financial assistance are those that participated in the 

Systemically Significant Failing Institutions Program, Targeted Investment Program, Automotive Industry Financing 

Program, or any future Treasury program designated by the Secretary as providing exceptional assistance. This 

designation subjects institutions to additional reporting requirements and certain restrictions, including restrictions on 

executive compensation. For more detail, see SIGTARP’s June 2010 audit report, “Treasury’s Monitoring of 

Compliance with TARP Requirements by Companies Receiving Exceptional Assistance.” 

Bank of America Proposals (Nov. 13, 2009) 

 Proposal 3 ($45B repayment) Proposal 4 ($35B repayment) 

• $12.7 billion common issuance • $7.7 billion common issuance 

• $5.0 billion trust preferred securities • $5.0 billion trust preferred securities 

• $1.5 billion asset sales • $1.5 billion asset sales 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 28

SIGTARP 11-005 September 29, 2011 

As Bank of America Submitted Additional Proposals, OCC and 

Treasury Indicated Support for Proposals that Fell Short of the 

1-for-2 Provision 

On November 16, 2009, Bank of 

America submitted a fifth repayment 

proposal, seeking to repay the full 

$45 billion and immediately exit by 

issuing $13 billion in new common 

stock equivalent,44 $5 billion in trust 

preferred securities, $1.7 billion in 

stock to employees in lieu of paying 

cash bonuses, applying proceeds from $5.3 billion in asset sales, and using 

existing liquidity. Because Bank of America shareholders would need to 

authorize additional shares to permit the institution to issue the $13 billion in 

common stock, the bank proposed issuing a common stock equivalent and 

incentivizing shareholders to later vote for its conversion to common stock. 

While the proposal would significantly increase Bank of America’s Tier 1 

Common ratio, it was still inconsistent with the 1-for-2 provision, and regulators 

considered whether its approval would set a precedent for the remaining SCAP 

institutions. 

Nevertheless, Bank of America submitted a sixth full repayment and immediate 

exit proposal to FRB on November 17, 2009, increasing the common stock it 

proposed to issue to $14 billion, the 

proceeds from asset sales to 

$6.8 billion, and removing the trust 

preferred securities altogether. 

Although the 1-for-2 provision was 

designed to apply only to new 

common stock, after receiving this 

proposal, FRB considered relaxing the guidance to allow for the inclusion of other 

sources of capital. Regulators discussed how to count asset sales in the 1-for-2 

guidance, but did not accept this proposal. 

 

44 Common stock equivalent is an interim security that converts to common stock upon shareholder approval. The terms 

of Bank of America’s common stock equivalent also provided that, if sufficient shares of common stock had not been 

authorized within 105 days of the issuance of the common stock equivalent, the dividend on the common stock 

equivalent would have increased from the rate on common stock to 10%, and continued to increase by 2% each quarter 

thereafter until the rate reached 16%. 

Bank of America Proposal 5 

(Nov. 16, 2009) 

• $13.0 billion common issuance 

• $5.0 billion trust preferred securities 

• $5.3 billion asset sales 

• $1.7 billion employee stock compensation 

Bank of America Proposal 6 

(Nov. 17, 2009) 

• $14.0 billion common issuance 

• $6.8 billion asset sales 

• $1.7 billion employee stock compensation 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 29

SIGTARP 11-005 September 29, 2011 

Bank of America submitted another full repayment proposal the following day. 

Without increasing the amount of 

common stock the bank proposed 

to issue, the proposal submitted on 

November 18, 2009, added back 

$2.5 billion of the trust preferred 

securities and increased the 

proposed proceeds from asset sales 

to $8.8 billion.45 Later that day, 

OCC cited the proposed repayment’s positive impact on the institution’s capital 

and liquidity, additional savings from no longer paying TARP dividends, 

increased managerial flexibility, and client stabilization. OCC internally stated 

that the proposal “meets all technical requirements” established by regulators. 

Former Comptroller Dugan explained that OCC viewed the 1-for-2 provision as 

“a fine benchmark, but not an ironclad requirement,” and was concerned that 

institutions might miss a window of strong investor demand for financial stocks if 

regulators held the line on repayment requirements that were, in his view, “too 

rigid.” After reviewing the proposal, Treasury also advised FRB to move forward 

on Bank of America’s TARP repayment. FRB and FDIC continued discussions 

about whether to allow asset sales into the 1-for-2 provision. According to FRB, 

Treasury provided input that asset sales should count at a 1-for-1 ratio, meaning 

that a bank could redeem $1 of TARP for every $1 generated by an asset sale up 

to a predetermined cap. 

FDIC Maintained Its Opposition as Bank of America Submitted Its 

Eighth and Ninth Proposals, While Regulators Debated the 

Feasibility of a $22.5 Billion Common Stock Issuance 

Bank of America submitted an eighth proposal to FRB on November 20, 2009, 

that offered to issue an additional 

$1 billion in trust preferred 

securities beyond the terms 

previously proposed. FDIC learned 

that FRB was prepared to approve 

this most recent TARP repayment 

request. Then-Chairman Bair wrote, 

“Well, we will have to oppose this 

and so notify the bank.” She told SIGTARP she was frustrated that the proposal 

did not meet the expedited repayment terms that regulators had agreed to. 

FRB and FDIC then engaged in conversations about how much capital the market 

could absorb. Bank of America asserted that it would not be able to successfully 

fill a $22.5 billion common stock offering, and that a partial repayment would 

 

45 Bank of America also proposed to reduce the amount of assets sold by twice the amount of any common stock issued 

in excess of $14 billion. 

Bank of America Proposal 7 

(Nov. 18, 2009) 

• $14.0 billion common issuance 

• $2.5 billion trust preferred securities 

• $8.8 billion asset sales 

• $1.7 billion employee stock compensation 

Bank of America Proposal 8 

(Nov. 20, 2009) 

• $14.0 billion common issuance 

• $3.5 billion trust preferred securities 

• $8.8 billion asset sales 

• $1.7 billion employee stock compensation 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 30

SIGTARP 11-005 September 29, 2011 

also not be feasible. According to the bank, it was concerned that a partial 

repayment might lead investors to suspect that regulators had additional credit 

concerns or that additional repayments would require another equity offering. 

While some within FRB remained unconvinced, according to an FRB governor, 

Treasury was also inclined to believe that issuing $22.5 billion was “out of reach 

or that it risks a failed offering – a very bad outcome.” When asked about this 

concern, a senior Treasury official told SIGTARP that a determination on what 

the market could bear was “always a judgment call” because “there were lots of 

moving parts, and it wasn’t black and white.” 

On November 21, 2009, then-Chairman Bair acknowledged that Bank of America 

might have to accept dilution and sell its stock at a discount to augment the size of 

the proposed offering, but noted “that should not be our concern.” She further 

stated, at that time, that if Bank of America could not meet the 1-for-2 minimum, 

“then that reflects market weakness which just validates the view that they aren’t 

yet strong enough to exit.” She later told SIGTARP that “the argument [FRB and 

OCC] used against us – which frustrated me to no end – is that [Bank of America] 

can’t use the 2-for-1 because they’re not strong enough to raise 2-for-1. That just 

mystified me. The point was if they’re not strong enough, they shouldn’t have 

been exiting TARP.” She added that “with TARP being over, Treasury couldn’t 

come back in,” 46 and FDIC was concerned about its exposure to Bank of America 

through its deposit insurance fund and the institution’s participation in TLGP. 

Then-Chairman Bair was also concerned in late November 2009 that acceptance 

of the proposal would have repercussions with other TARP banks seeing the 

Government as loosening its repayment standards and expecting a similar deal. 

She added, at the time, that “none of us liked the TARP program but let’s not 

compound the error now by allowing a weak institution to prematurely exit.” 

FRB Governor Tarullo told SIGTARP that the issue was not about the strength of 

Bank of America, but was really about “how much could the market absorb.” 

Regulators sought the input of Wall Street advisors. Governor Tarullo told 

SIGTARP that despite bringing in these advisors, “nobody could be certain” how 

much Bank of America could successfully issue and that FRB “had to make a 

judgment as to some amount, which would be difficult to pull off.” FRB 

Governor Kohn told SIGTARP that FRB wanted to push Bank of America to 

issue as much new common stock as the market would allow, but there was a 

feeling “that if they went out for something and didn’t get it, it would be a vote of 

no confidence.” He added that “it was better to go out for a little less and top it 

off” by exercising the overallotment option. Officials from OCC and Treasury 

also told SIGTARP that requiring Bank of America to issue $22.5 billion in new 

common stock – the largest ever common stock offering in the U.S. – would have 

risked a failed equity offering, potentially destabilizing the firm and threatening 

 

46 On December 9, 2009, one week after FRB approved Bank of America’s final repayment proposal, Secretary Geithner 

extended Treasury’s authority to commit TARP funds until October 3, 2010, pursuant to section 120 of EESA. 

Without the extension, Treasury’s authority would have terminated on December 31, 2009. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 31

SIGTARP 11-005 September 29, 2011 

confidence in the broader financial system. FRB Governor Tarullo added that “it 

was not in anyone’s interest, not the firms, not Treasury, or the financial system to 

have one firm go out and fail to get the amount in question.” 

Meanwhile, on November 23, 2009, Bank of America submitted its ninth proposal 

to FRB to repay TARP in full and immediately exit, increasing the size of the 

proposed common stock offering to 

$15 billion, and adjusting the amount 

of trust preferred securities and the 

proceeds it proposed to generate 

through asset sales. On 

November 25, 2009, two Bank of 

America directors met with thenChairman Bair to discuss exiting 

TARP. Former Bank of America CEO Kenneth Lewis told SIGTARP that it was 

important to receive FDIC’s approval to exit TARP. Mr. Lewis said that the 

understanding within Bank of America was that “for all practical purposes” Bank 

of America’s TARP exit “wouldn’t go forward without [FDIC’s] support.” ThenChairman Bair told SIGTARP that while FDIC “had no legal standing on this,” 

the regulator had “implicit leverage...to weigh into the process” that is built into 

agency relationships. 

At the meeting, the two Bank of America directors briefed then-Chairman Bair on 

the bank’s operating condition, including its need to repay TARP in order to 

complete a successful CEO search. She reaffirmed FDIC’s position that 1-for-2 

was the minimum requirement. According to Bank of America, she also offered 

as an alternative to arrange an interagency agreement to allow for a partial TARP 

repayment and the bank’s removal from the exceptional assistance designation. 

FDIC told SIGTARP that partial repayment and limited relief from employment 

restrictions for the purpose of recruiting a new CEO would have been preferable 

to a TARP repayment that was inconsistent with the 1-for-2 provision. 

Regulators Sought Advice and Consensus on the Amount of 

Common Stock Bank of America Could Issue 

On November 25, 2009, all three regulators held a conference call with the 

outside advisors to Bank of America and FRB to discuss differing views of the 

amount of common stock that Bank of America would be able to successfully 

issue in the market. That same day, financial markets were rattled by an 

announcement that the Government of Dubai’s flagship holding company would 

seek to postpone debt payments. The resulting uncertainty further complicated 

discussions about the timing and size of Bank of America’s proposed raise. 

Because no one could predict how the market would react to various issuance 

targets, on November 29, 2009, regulators began to discuss a “best efforts” plan in 

which Bank of America would try to raise as much common stock as possible 

Bank of America Proposal 9 

(Nov. 23, 2009) 

• $15.0 billion common issuance 

• $4.0 billion trust preferred securities 

• $7.6 billion asset sales 

• $1.7 billion employee stock 

compensation 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 32

SIGTARP 11-005 September 29, 2011 

such that any remaining TARP capital would be repaid through other means. 

Regulators would push for as much issuance of common stock as the market 

would bear, and any shortfall could be replaced with trust preferred securities and 

asset sales through an agreed-upon path to exit over time. 

On November 30, 2009, Bank of America reasserted that only a plan that would 

get it out of TARP entirely through one lump sum repayment was feasible. An 

FRB official noted to SIGTARP that the option built into the November 2009 

guidance that allowed for a partial repayment and multi-staged exit from TARP 

turned out to be impractical for some firms, in part because customers and 

investors believed that TARP participation carried a stigma. FRB Governor 

Tarullo reiterated this point, telling SIGTARP, “It was a binary situation where 

markets were going to view firms as out of the Government embrace or not.” 

FRB Approved Bank of America’s 11th and Final Proposal After 

Reaching Agreement with FDIC on the Terms 

On December 1, 2009, Bank of America submitted its 10th proposal to FRB, this 

time to repay TARP in full and 

immediately exit by issuing 

$18.8 billion in common stock, 

$4 billion in trust preferred 

securities, and $1.7 billion in 

common stock to employees. FDIC 

did not believe that Bank of America 

should get any credit for trust 

preferred securities because, in its 

view, trust preferred securities had 

proven not to have the loss 

absorbing capacity of common 

equity, and the guidance clearly 

called for new common equity. Regulators ultimately determined that it would be 

preferable to count some amount of prospective asset sales, if backed by a 

commitment to raise additional common stock to the extent that the asset sales 

were not completed. 

Later on December 1, 2009, Bank of America submitted an 11th and final 

proposal, replacing the trust preferred securities with asset sales to be completed 

by December 31, 2010. The institution now proposed to repay the full $45 billion 

TARP commitment and immediately exit by issuing $18.8 billion in common 

stock, $1.7 billion in common stock to employees, and committing to enter into 

binding contracts to sell assets by June 30, 2010, that would generate an 

additional $4 billion in common equity by December 31, 2010, backstopped by 

common stock, and using existing liquidity. 

Bank of America Proposal 10 

(Dec. 1, 2009) 

• $18.8 billion common issuance 

• $4.0 billion trust preferred securities 

• $1.7 billion employee stock compensation 

Bank of America Proposal 11 

(Dec. 1, 2009) 

• $18.8 billion common issuance 

• $4.0 billion asset sales 

• $1.7 billion employee stock compensation 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 33

SIGTARP 11-005 September 29, 2011 

The amount of common stock Bank of America eventually agreed to issue was 

more than twice the amount the institution initially proposed. Mr. Lewis told 

SIGTARP that each proposal Bank of America submitted was a “reasonable 

proposal” and that the institution was not “low-balling” as a tactic in negotiations. 

FDIC officials, however, told SIGTARP that in their view Bank of America’s 

outside advisor did low-ball its estimate of the amount the institution would be 

able to raise through an equity offering. Then-Chairman Bair told SIGTARP that 

FDIC eventually agreed to the 11th proposal after Bank of America officials made 

a verbal commitment to her that the bank would raise equity through an 

overallotment option in accordance with the 1-for-2 provision rather than rely on 

earnings from the asset sales. 

On December 2, 2009, FRB approved Bank of America’s repayment proposal and 

Bank of America issued a press release detailing the terms of its exit from TARP. 

Bank of America’s common stock offering on December 4, 2009, raised 

$19.3 billion, though the overallotment option was never exercised, and Bank of 

America repaid Treasury’s $45 billion TARP investment in full on 

December 9, 2009. Then-Chairman Bair told SIGTARP that the offering was 

“oversubscribed” and said that FDIC was “disappointed” that the will was not 

there to issue additional common stock. She added, “They could’ve gotten the 

whole thing” and met the requirement to raise $22.5 billion in new common stock 

in accordance with the 1-for-2 provision as originally designed. Governor Tarullo 

told SIGTARP that once Bank of America raised this “enormous amount of 

capital,” other TARP recipients thought that maybe they too should “go down this 

path” and raise equity in a sufficient amount to repay TARP in full and 

immediately exit. 

Bank of America increased its common stock issuance by $500 million from 

$18.8 billion to $19.3 billion, still short of the $22.5 billion called for by the 1-

for-2 guidance. As a result, the amount of additional capital it was required to 

raise in 2010 decreased from $4 billion to $3 billion. Realizing that it would not 

meet a June 30, 2010, interim deadline to enter binding contracts, Bank of 

America requested that FRB waive the interim deadline and use more favorable 

accounting rules that were in place at the time the repayment agreement was 

signed to credit the proceeds from asset sales. FRB agreed to waive the interim 

deadline, but maintained the requirement that all asset sales be completed 

according to current accounting rules by December 31, 2010. On 

November 15, 2010, Bank of America reported to the Federal Reserve Bank of 

Richmond (“FRB Richmond”) that it would generate more than $3.1 billion in 

post-tax profit with the completion of an asset sale on November 23, 2010. At 

that point, nearly one year after its exit, Bank of America satisfied the terms 

agreed to during the institution’s exit from TARP in December 2009. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 34

SIGTARP 11-005 September 29, 2011 

Citigroup’s TARP Exit 

The Conversion of Treasury’s CPP Investment to Common Stock, 

Citigroup’s Repayment of TIP, and Treasury’s Sale of Its Citigroup 

Common Stock 

This section details the events leading to Citigroup’s repayment of and exit from 

TARP. Citigroup’s TARP exit proceeded differently from the other institutions 

discussed in this report, largely because Citigroup converted Treasury’s 

$25 billion CPP investment from preferred stock to common stock. While 

Treasury’s $20 billion TIP investment in Citigroup remained subject to repayment 

procedures similar to those pertaining to other SCAP institutions, Citigroup was 

required to raise additional capital beyond the minimum established by the 

November 2009 guidance. The SIGTARP report, “Extraordinary Financial 

Assistance Provided to Citigroup, Inc.,” issued on January 13, 2011, describes in 

detail the process by which Citigroup sought to and ultimately repurchased the 

TIP trust preferred securities, as well as the trust preferred securities held by 

Treasury pursuant to AGP, and thus exited those aspects of its participation in 

TARP. In addition to summarizing the relevant events described in that report, 

this section adds several additional details. Figure 6 below shows the timeline of 

key events related to Citigroup’s repayment and exit from TARP. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 35

SIGTARP 11-005 September 29, 2011 

FIGURE 6 

KEY TARP REPAYMENT EVENTS FOR CITIGROUP (C) 

Sources: SIGTARP, OFS, FRB, Citigroup, and Bank of America. 

As Citigroup’s share price continued to decline in late 2008 and early 2009, 

regulators recognized that concerns persisted about the quality of the institution’s 

capital. According to OCC examiners, the market viewed the $45 billion of 

TARP preferred equity Citigroup received as the equivalent of debt, and wanted 

Citigroup to be infused with more common equity. Citigroup approached 

regulators to discuss such an infusion, and FRB began to analyze alternatives to 

bolster Citigroup’s common equity levels – specifically its Tangible Common 

Equity (“TCE”).47 Treasury and regulators decided to focus on converting 

Treasury’s preferred stock to common stock. 

In addition to converting the preferred stock held by Treasury, regulators also 

advocated for Citigroup to incentivize private shareholders to convert their 

preferred stock to common stock. FDIC suggested that Citigroup suspend the 

dividends the institution paid to its private preferred shareholders in order to do 

so. Citigroup, for its part, worked to obtain commitments from private investors 

 

47 TCE, as defined by Citigroup, represents common equity minus goodwill and intangible assets, other than Mortgage 

Servicing Rights, net of related deferred taxes. Other companies may calculate TCE differently. 

SEP 2009 OCT 2009 NOV 2009 DEC 2009 JAN 2010 FEB 2010 

Citigroup, Inc. (C) 

Post-Nov 2009 Guidance Repayments 

Nov 3, 2009 

FRB issues nonpublic revised 

guidance with 1-for2 expedited 

repayment option 

Nov 24, 2009 

Deadline for 

repayment plans 

required by FRB 

guidance 

Dec 9, 2009 

BAC repays $45B and 

exits TARP 

Dec 1-2, 2009 

BAC submits final proposal; 

FRB approves on 12/2; BAC 

announces equity offering 

> $19.3B ISSUANCE*

Note: Issuances commenced after announcement 

and were completed at a later date 

*BAC issued common equivalent securities, 

which converted to common stock on Feb 24, 2010 

**C also issued $3.5B in tangible equity units 

Sep 11, 2009 

Treasury’s converts 

$25B CPP investment 

in C to common stock; 

C discusses TIP 

repayment with 

FRBNY 

Dec 13-14, 2009 

C submits final 

repayment proposal; 

FRB approves on 

12/14; C announces 

offering 

> $17.6B ISSUANCE** 

Dec 23, 2009 

C repays $20B (TIP)

and AGP is terminated 

Nov 5, 2009 

FRBNY notifies C

that ineligible to 

repay subject to 

1-for-2 provision in 

Nov 2009 guidance 

Nov-Dec 2009 

FRBNY conducts 

2nd stress test using 

new data & 

assumptions to 

determine amount 

C would need to 

raise to repay TIP

Dec 9, 2009

C submits first formal 

proposal to 

repurchase all $20B 

preferred stock (TIP) 

and terminate AGP
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 36

SIGTARP 11-005 September 29, 2011 

to convert their preferred stock to common stock, pending Treasury’s agreement 

to also convert its investment.48 

Citing the “urgency of the situation” and the potential ramifications of not 

completing the exchange offer, Treasury’s Investment Committee49 advised 

Secretary Geithner to participate in the offer under the condition that Treasury’s 

involvement was contingent upon an unspecified amount of private-sector 

participation.50 According to a memorandum prepared by Treasury’s Investment 

Committee on February 26, 2009, taking no action to convert the Citigroup 

investment to common stock could have hastened the deterioration of Citigroup 

and reverberated throughout the U.S. economy, contributing materially to weaker 

economic performance and higher unemployment. 

Treasury’s CPP Investment Was Converted from Preferred Stock to 

Common Stock, Making Treasury Citigroup’s Single Largest 

Common Stock Holder 

On February 27, 2009, Treasury and Citigroup publicly announced the exchange 

offer. Citigroup also agreed to exchange up to $27.5 billion of existing private 

preferred and trust preferred stock to common stock.51 Through a press release, 

Citigroup CEO Vikram Pandit announced that the singular goal of the exchange 

was to increase the institution’s TCE from the fourth quarter 2008 level of 

$29.7 billion to as much as $81 billion. 

Citigroup’s stock price stabilized shortly after the exchange was announced, but 

the transaction could not be completed before the execution of an agreement 

between Treasury and Citigroup on June 9, 2009. On July 23, 2009, and 

July 30, 2009, Treasury converted its $25 billion in Citigroup preferred stock to 

common stock equivalent, an interim security that would convert to common 

stock upon authorization. 

 

48 A Citigroup executive sent an email to Secretary Geithner on February 21, 2009, stating that Citigroup had $15 billion 

of private preferred stock “ready to convert” should Treasury agree to convert some of its investment. The executive 

also indicated that the proposed conversion, combined with asset sales, would boost the institution’s TCE to a 

satisfactory level “without having the [U.S. Government] own too much of Citi.” 

49 Treasury’s TARP Investment Committee was created to serve as a decision-making body to approve the investment 

decisions made under TARP authority. The Investment Committee consists of TARP’s Chief Investment Officer and 

senior Treasury officials from financial markets, economic policy, financial institutions, and financial stability. 50 Treasury would assume additional risk by converting the preferred securities it held to more junior common equity, 

and forgo revenue from dividend payments owed to Treasury under the CPP preferred investment agreement. Treasury 

also agreed to exchange the preferred stock issued under TIP and AGP for trust preferred securities with the dividend 

rate on the new securities remaining unchanged. The final term sheet specified that Treasury would convert an amount 

of preferred stock equal to the amount converted by private equity holders, up to the $25 billion issued under CPP, 

provided that private equity holders converted at least $11.5 billion worth of preferred stock. 51 Citigroup would later increase the amount of the exchange offer to $33 billion to meet the regulatory requirements 

announced with the results of the SCAP stress tests. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 37

SIGTARP 11-005 September 29, 2011 

Around this time, FDIC expressed concern about Citigroup’s management and its 

liquidity. In response to these concerns, Citigroup assured regulators that it would 

take specific action to strengthen its supervisory oversight of the bank’s 

management and undergo a management review conducted by an independent 

third party consultant agreed to by all the regulators. Then-FDIC Chairman Bair 

told SIGTARP that some of the promises Citigroup made were “half-filled.” 

While she said she was pleased with some of the management changes that 

resulted from the review, she added that she “thought there would have been more 

changes at the top.” However, according to OCC, the independent management 

review was consistent with Citigroup’s assurances, and then Comptroller Dugan 

told SIGTARP that he was unaware of any unfulfilled promises. 

The common stock equivalent Treasury received in late July 2009 ultimately 

converted to approximately 7.7 billion shares of common stock at $3.25 per share 

on September 11, 2009. At the time, Treasury became the largest single 

shareholder of Citigroup, holding approximately 33.6% of Citigroup common 

stock.52 The conversion would ultimately affect Citigroup’s exit from CPP 

because the guidance outlining the process and criteria whereby SCAP institutions 

were permitted to repurchase TARP preferred shares did not apply to Treasury’s 

common stock investment in Citigroup. Instead – unlike the other SCAP 

institutions that received CPP funds – Citigroup’s exit from the program was 

dependent upon Treasury selling the common stock it held to the public market. 

Treasury ultimately sold its Citigroup stock into the market from April 26, 2010, 

through December 10, 2010. 

Citigroup Sought to Repay TIP and Regulators Debated the Amount 

and Composition of the Capital Citigroup Would Be Required 

to Raise 

After converting its CPP investment in Citigroup to common stock, Treasury still 

held the $20 billion in trust preferred securities invested through TIP. Citigroup 

was permitted to repurchase this investment subject to approval from FRB, the 

holding company’s primary Federal regulator.53 On September 11, 2009 – the 

same day the CPP conversion was completed – Citigroup CEO Pandit met with 

Federal Reserve Bank of New York (“FRBNY”) President William Dudley to 

discuss repaying TIP and terminating the ring-fence guarantee provided by the 

Government through AGP. During the meeting, Citigroup presented its financial 

condition, including the results of an internal stress test. 

 

52 The agreed-upon price per share was based on the average of Citigroup’s stock price over the previous 20 days. 53 As noted above, the SIGTARP report, “Extraordinary Financial Assistance Provided to Citigroup, Inc.,” 

January 13, 2011, describes in detail the process by which Citigroup sought to and ultimately did repurchase the TIP 

trust preferred securities, as well as the trust preferred securities held by Treasury pursuant to AGP, and thus exited 

those aspects of its participation in TARP. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 38

SIGTARP 11-005 September 29, 2011 

FRBNY concluded that the information provided by Citigroup about its financial 

condition was insufficient to determine whether or not Citigroup was in a 

condition to repay TIP and terminate AGP. FRB later told Citigroup to wait until 

the agency issued revised guidance to remaining SCAP institutions on TARP 

repayment. FDIC also conducted an independent analysis of Citigroup’s planning 

and forecasting processes and identified many of the same issues identified by 

FRBNY. 

Nonetheless, regulators continued to discuss Citigroup’s condition and prospects 

for repaying Treasury’s $20 billion TIP investment and terminating AGP. 

According to FRB Governor Tarullo, given Citigroup’s “travails, its challenges,” 

regulators would “treat them differently than a lot of institutions.” He added that 

Citigroup would have to raise more capital, “way beyond 1-for-2.” According to 

FDIC, regulators had agreed during the late October meetings that Citigroup 

would need to raise a minimum of $1 in capital for every $1 in TARP funds it 

repaid. OCC also stated that all regulators understood that Citigroup would be 

held to a higher standard, up to 1-for-1, though neither then-Comptroller Dugan 

nor OCC staff recalled a formal agreement during the late October meetings 

establishing such a requirement.54 

While discussing Citigroup’s capital needs, regulators moved closer to issuing the 

November 2009 repayment guidance to all SCAP institutions. However, some 

Treasury and FRB officials were concerned that publicizing the guidance might 

stigmatize Citigroup because the institution would not be eligible to exit subject to 

the 1-for-2 minimum provision allowing consideration for expedited repayment. 

According to a former senior Treasury official, the concern within Treasury “was 

all about confidence and stability,” with officials wary of taking any action that 

might destabilize an institution. Similarly, an FRB governor told SIGTARP that 

“if ultimately we’re saying those that are repaying are healthy, then we’re 

implicitly saying that those that won’t aren’t.” FRB decided to issue the revised 

guidance non-publicly. 

On November 5, 2009, an FRBNY official met with Citigroup CEO Pandit and 

Citigroup’s Chief Financial Officer to discuss the revised guidance. During the 

meeting, the FRBNY official informed Citigroup management that the 1-for-2 

provision would not apply to Citigroup. Instead, Citigroup would have to repay 

Treasury’s $20 billion TIP investment with a larger proportion of newly raised 

common equity than other SCAP institutions. That amount would be subject to 

the results of a repayment stress test to be conducted by FRBNY, FRB, and OCC 

starting on November 9, 2009. The repayment stress test for Citigroup used the 

format and process of the original SCAP stress test, but several data inputs were 

updated. For example, the original SCAP stress test used Citigroup financial data 

 

54 A draft version of the guidance disseminated on the same day as one of the meetings held at Treasury notes that in 

some circumstances an institution may be required to fully offset the redemption of Treasury capital by raising $1 of 

new private common equity and $1 of new private preferred equity for every $2 in TARP funds being repaid. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 39

SIGTARP 11-005 September 29, 2011 

as of December 31, 2008, while the repayment stress test used financial data as of 

September 30, 2009. The worst-case unemployment rate used in the stress test 

was increased from 10.4% to 11.1% to reflect an increase in the actual 

unemployment rate from 8.9% in April 2009 to 10% in November 2009. While 

actual housing prices had risen during that period, the worst-case forecast for 

housing prices in the repayment stress test was maintained at the same level used 

in the SCAP stress test. 

The stress test was not the only factor influencing the assessment of Citigroup’s 

capital needs to exit TARP. Complicating the analysis were other variables that 

could impact the institution’s access to capital, including a decision on whether to 

terminate the ring-fence guarantee provided through AGP and a decision by 

Treasury on whether to grant a blanket exception to a rule impacting the sale of 

Citigroup common stock held by Treasury. Because Citigroup would still hold 

CPP funds, a decision on whether the institution would remain subject to stricter 

compensation restrictions, including being subject to the purview of the Special 

Master for TARP Executive Compensation, was also pending resolution. 

Announcement of Bank of America’s Repayment Intensified Market 

Speculation About Citigroup’s Repayment Plans and Citigroup 

Requested to Exit from AGP in Addition to TIP 

As regulators discussed Citigroup’s capital raise requirements, Bank of America’s 

December 2, 2009, announcement that it would repay TARP intensified market 

speculation about Citigroup’s repayment prospects. That day, a Citigroup 

executive sent news reports to OCC highlighting some of the speculation. 

Subsequent media reports speculated on the possibility that no repayment 

agreement would be reached before the end of the year. According to an FRB 

email, Citigroup CEO Pandit also voiced concern to a senior Treasury official that 

Citigroup might become stigmatized by its continued participation in TIP and 

wondered how to respond publicly to the news of Bank of America’s exit from 

TARP. When asked about the conversation, the Treasury official told SIGTARP 

that Mr. Pandit was “concerned about being the last one in extraordinary 

assistance from a competitive standpoint, for recruiting employees.” Mr. Pandit 

told SIGTARP that “having $45 billion from the Government had no positive 

impact on Citigroup’s image” and also confirmed that the desire to escape 

management compensation restrictions was a factor motivating Citigroup’s desire 

to exit TARP.55

In the midst of the media speculation, regulators continued to seek consensus on 

the composition of the capital raise that would be required of Citigroup to repay 

TIP. That week, Citigroup specified that the institution was requesting a 

 

55 As detailed in SIGTARP’s report, “Extraordinary Financial Assistance Provided to Citigroup, Inc.,” there were several 

motivations for Citigroup’s decision to repay its TIP funds when it did, which included executive compensation 

restrictions, employee morale, and the institution’s image. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 40

SIGTARP 11-005 September 29, 2011 

simultaneous termination of the ring-fence guarantee provided through AGP. 

Then-FDIC Chairman Bair expressed concern about terminating the ring-fence, 

worrying that Citigroup’s request was “all about compensation.” FRB 

recalculated the amount Citigroup would be required to raise to reflect the 

additional capital offset necessary to terminate AGP. FRB determined that 

Citigroup would need to raise a total of $23.1 billion in common equity to meet 

the 1-for-1 TIP repayment requirement and simultaneously offset the capital hit 

that would result from terminating the ring-fence received through AGP. 

Citigroup Submitted Three Proposals to Fully Repay TIP and 

Terminate Its Participation in AGP 

On December 9, 2009, Citigroup sent 

FRBNY its first formal repayment 

proposal. The proposal, like the two that 

followed on December 10, 2009, and 

December 13, 2009, proposed to fully 

repay all $20 billion in Citigroup TIP 

trust preferred securities and to terminate 

Citigroup’s involvement in AGP. 

Citigroup proposed to issue $15 billion in 

common stock and to supplement the 

raise with a $2.25 billion overallotment 

option (or green shoe),56 $2.5 billion in 

tangible equity units,57 and $1 billion in 

employee stock compensation. FRBNY 

responded to Citigroup’s proposal by 

informing the institution that the capital 

raise detailed in the proposal did not 

contain enough common equity. 

On December 10, 2009, Citigroup 

submitted a second proposal, in which it 

proposed to increase the amount it would 

issue through each type of capital 

instrument. Citigroup now proposed to issue $17 billion in common stock 

supplemented with a $2.55 billion overallotment option, $3.5 billion in tangible 

 

56 In this case, the overallotment option allowed the underwriters to sell up to $2.25 billion more than the initial allotment 

of $15 billion, if the initial allotment was fully subscribed. 57 Citigroup requested that 80%, or $2.0 billion, of the tangible equity units count toward common equity. The tangible 

equity units consisted of a stock purchase contract and a junior subordinated amortizing note. The stock purchase 

contract has a settlement date of December 15, 2012, and prior to completion of a 10:1 reverse stock split would have 

settled for between 25.3968 and 31.7460 shares of Citigroup common stock (between 2.5397 and 3.1746 shares post 

split). The amortizing notes will pay holders equal quarterly installments of $1.875 per amortizing note, totaling a 

7.5% cash payment per year for each $100 of tangible equity units. The final payment is scheduled for 

December 15, 2012. 

Citigroup Proposal 1 

(Dec. 9, 2009) 

• $15 billion common stock issuance 

• $2.25 billion common stock 

overallotment option 

• $2.5 billion tangible equity units 

• $1 billion employee stock 

compensation 

Tangible Equity Units 

Innovative financial instruments that 

allowed Citigroup to raise additional 

common equity beyond the common stock 

it planned to issue. 

Citigroup would receive full payment for 

the instruments in advance in exchange for 

stock to be delivered in three years and 

interest and principal payments on a note 

during the intervening period. Based on a 

review of the instrument’s characteristics, 

FRB agreed to permit Citigroup to treat 

80% of the value of the tangible equity 

units as Tier 1 Capital. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 41

SIGTARP 11-005 September 29, 2011 

equity units, and $1.7 billion in 

employee stock compensation. An 

FRBNY official told SIGTARP that at 

the time FRBNY considered the 

amount of capital to be adequate but 

was concerned that Citigroup might not 

be able to fill its overallotment option, 

which was dependent on market 

demand for its stock. In light of this concern, FRBNY informed Citigroup that 

the next repayment proposal should include a clause stipulating actions that 

Citigroup would need to take in the event the overallotment option was not 

sufficiently exercised. 

On Sunday, December 13, 2009, Citigroup submitted its final proposal to 

FRBNY. Unlike previous proposals, the latest proposal included capital raise 

conditions and the cancellation of $1.8 billion of trust preferred securities in 

connection with the termination of AGP. The proposal also included an 

acknowledgment that “if the offering of common stock and tangible equity units 

[did] not generate at least $21.3 billion of additional equity capital, the regulators 

would expect Citigroup to issue additional [trust preferred securities] in a ratio of 

$2 for every $1 the equity raised falls short of $21.3 billion, subject to a minimum 

equity raise of $19.8 billion, up to a maximum of $3.0 billion of [trust preferred 

securities].” Citigroup would have had to fill at least $1.5 billion of the 

overallotment option in order to satisfy the requirement to generate additional 

equity capital of $21.3 billion. 

In part to address then-FDIC Chairman 

Bair’s concern that the ring-fence 

termination was motivated by a desire 

to remove compensation restrictions, 

Treasury and regulators specified in the 

ring-fence termination agreement that 

during 2010, FRB would review the 

compensation of the institution’s top 30 

earners, in consultation with FDIC and 

OCC. With this agreement in place, 

regulators signed off on the proposal. 

The terms of the cancellation of AGP trust preferred securities, under which 

$1.8 billion was canceled, resulted from separate negotiations with Treasury.58 

The Government kept the other $5.2 billion in Citigroup trust preferred securities 

as payment for its guarantee of the asset pool for one year. According to this final 

 

58 For further details on the termination of Citigroup’s participation in AGP, see SIGTARP’s report “Extraordinary 

Financial Assistance Provided to Citigroup, Inc.,” issued on January 13, 2011. 

Citigroup Proposal 2 

(Dec. 10, 2009) 

• $17 billion common stock issuance 

• $2.55 billion common stock 

overallotment option 

• $3.5 billion tangible equity units 

• $1.7 billion employee stock 

compensation 

Citigroup Proposal 3 

 (Dec. 13, 2009) 

• $17 billion common stock issuance 

• $2.55 billion common stock overallotment 

option 

• $3.5 billion tangible equity units 

• $1.7 billion employee stock 

compensation 

• Agreement to issue additional trust 

preferred securities as a backstop 

against failing to meet equity targets 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 42

SIGTARP 11-005 September 29, 2011 

Citigroup repayment proposal, Citigroup expected a $1.1 billion capital benefit to 

result from the cancellation of the $1.8 billion in AGP trust preferred securities 

that the Government surrendered. With this $1.1 billion benefit added to the 

expected new capital raise of $24.05 billion, Citigroup expected its proposal 

would generate up to $25.15 billion in capital. 

FRB Approved Citigroup’s Proposal to Fully Repay TIP and 

Terminate Its Participation in AGP; Treasury Sold Its CPP 

Investment in Citigroup 

On Monday, December 14, 2009 – one day after Citigroup submitted its final 

proposal – FRB sent Citigroup a letter indicating FRB approved Citigroup’s final 

request to repay the TIP capital and terminate AGP. The letter also detailed the 

conditions Citigroup would need to meet to exit the two programs. On 

Wednesday, December 16, 2009, Citigroup priced its offering and announced the 

details of the corresponding capital raise, which Citigroup began executing that 

same day. 

Citigroup’s common stock offering occurred nearly simultaneously with Wells 

Fargo’s, possibly impacting market demand for Citigroup’s stock. Citigroup 

expressed frustration that Wells Fargo issued common stock to repay TARP 

nearly simultaneously. Mr. Pandit told SIGTARP, “Wells Fargo was perturbing 

in issuing equity right before we did.” He added, “Anytime you have $20 billion 

in equity to raise, and you go to bank buyers and there is another large raise, of 

course there is an impact from that.” 

Ultimately, Citigroup did not meet the $1.5 billion overallotment option necessary 

to satisfy the total $21.3 billion additional equity capital requirement. Instead, the 

institution raised only $600 million from the overallotment, resulting in a 

$900 million capital shortfall and a need to raise at least $1.8 billion in additional 

trust preferred securities during the first quarter of 2010 to meet the requirement 

agreed to with the regulators if the equity raise fell short. 

On December 23, 2009, Citigroup, Treasury, FDIC, and FRBNY all signed the 

Termination Agreement for Citigroup’s participation in AGP. That same day, 

Treasury and Citigroup also signed an agreement for the repayment of TIP. In 

March 2010, Citigroup raised $2.3 billion in trust preferred securities, satisfying 

the capital raise requirement under the terms of its repayment proposal. 

Although Treasury initially planned to sell some of its common stock investment 

in Citigroup concurrently with the institution’s equity offering, it retained all of its 

CPP investment after Citigroup repaid TIP and terminated AGP. On 

March 29, 2010, Treasury announced that, under a prearranged written trading 

plan, it would sell its Citigroup common stock in an “orderly and measured” 

fashion over the course of 2010, subject to market conditions. Treasury 

ultimately sold this stock into the market from April 26, 2010, through 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 43

SIGTARP 11-005 September 29, 2011 

December 10, 2010, generating $31.85 billion in proceeds to Treasury, or 

$6.85 billion more than Treasury’s original CPP investment in Citigroup. On 

January 25, 2011, Treasury auctioned warrants to purchase common stock in 

Citigroup that it received through CPP, TIP, and AGP for an aggregate of 

$312.2 million. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 44

SIGTARP 11-005 September 29, 2011 

Wells Fargo’s TARP Exit 

This section details the events leading to Wells Fargo’s repayment of TARP funds 

received through CPP. Wells Fargo proposed meeting the 1-for-2 provision in 

part by issuing stock through a private equity transaction. Regulators discussed 

how to treat this transaction at length until December 12, 2009, when the 

institution finally removed the transaction from its repayment proposal, and a 

final agreement was reached for Wells Fargo to exit TARP two days later. 

Figure 7 below shows the timeline of key events related to Wells Fargo’s 

repayment and exit from TARP. 

FIGURE 7

KEY TARP REPAYMENT EVENTS FOR WELLS FARGO (WFC) 

Sources: SIGTARP, OFS, FRB, Wells Fargo, Citigroup, and Bank of America. 

Nov 3, 2009 

FRB issues nonpublic revised 

guidance with 1-for2 expedited 

repayment option 

Nov 24, 2009

Deadline for 

repayment plans 

required by FRB 

guidance

Dec 9, 2009 

BAC repays $45B and 

exits TARP 

Dec 13-14, 2009 

C submits final proposal 

to repay TIP and 

terminate participation in 

AGP; FRB approves on 

12/14; C announces 

offering 

> $17.6B ISSUANCE**

Dec 23, 2009 

C repays $20B and AGP is 

terminated 

Dec 1-2, 2009 

BAC submits final proposal; 

FRB approves on 12/2; BAC 

announces equity offering 

> $19.3B ISSUANCE*

Note: Issuances commenced after announcement and were completed at a later date 

*BAC issued common equivalent securities, which converted to common stock on 

Feb 24, 2010 

**C also issued $3.5B in tangible equity units 

SEP 2009 OCT 2009 NOV 2009 DEC 2009 JAN 2010 FEB 2010 

Wells Fargo & Company (WFC) 

Post-Nov 2009 Guidance Repayments 

Dec 10, 2009

WFC repayment plan 

includes $2.8B common 

issuance along with 

Prudential transaction

Dec 14, 2009 

WFC submits final 

proposal; FRB 

approves; WFC 

announces offering 

> $12.2B ISSUANCE 

Dec 23, 2009 

WFC repays $25B 

and exits TARP 

Nov 24, 2009

WFC repayment plan 

notes that it has “been 

asked by Treasury to 

repay TARP;” Proposes 

private $4.5B Prudential 

transaction but no 

common issuance

Dec 12, 2009 

WFC proposals eliminates 

Prudential transaction and 

increases common 

issuance to $10.4B 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 45

SIGTARP 11-005 September 29, 2011 

OCC officials told SIGTARP that Wells 

Fargo originally planned to repay TARP 

over time by accumulating and retaining 

earnings, and making smaller, partial 

TARP repayments using those earnings 

rather than making a one-time repayment using proceeds from a common stock 

issuance. Wells Fargo’s CEO John Stumpf explained to SIGTARP that the 

institution sought to repay TARP while minimizing the dilution to current 

shareholders that would result from issuing new common stock. On 

September 22, 2009, bank executives provided FRB with a TARP repayment plan 

that reflected this strategy. The plan envisioned Wells Fargo repaying Treasury’s 

$25 billion TARP investment over four installments, proposing to make the final 

payment in the third quarter of 2010. Regulators, however, were in the midst of 

developing what would become the November guidance that would govern 

repayments. 

Wells Fargo Sought to Use Settlement with Prudential Toward 

the 1-for-2 Provision 

Wells Fargo sought to apply the 

settlement of a pending transaction with 

Prudential Financial, Inc. (“Prudential”) 

toward the 1-for-2 provision. As a 

result of acquiring Wachovia in 

December 2008, Wells Fargo owned a 

controlling interest in a retail securities 

brokerage joint venture with Prudential. 

Prudential elected to exercise a “put option” to sell its minority interest in the joint 

venture to Wells Fargo, creating a $4.5 billion59 obligation that Wells Fargo was 

required to settle with Prudential by January 4, 2010. This obligation could be 

settled in cash or in Wells Fargo common stock, which Prudential intended to 

liquidate by selling to public markets. 

Wells Fargo planned to issue common stock to 

settle the Prudential transaction and apply the 

private issuance toward the 1-for-2 provision 

to seek partial repayment.60 On the day FRB 

issued the revised guidance, Wells Fargo met 

with regulators to discuss this possibility, but 

did not receive clarity on whether the 

 

59 In its November 4, 2009, letter, Wells Fargo estimated the value of Prudential’s minority interest to be up to $5 billion. 

In repayment proposals later submitted to FRB, Wells Fargo specified that it planned to issue $4.5 billion of common 

stock to settle with Prudential. The latter amount is used here for simplicity. 60 The November 2009 guidance stated that firms may repay all or part of TARP by “issu[ing] $1 of new common equity 

for every $2” repaid so long as the firm can, among other things, show “recent access to public equity markets” 

(emphasis added). 

Wells Fargo Proposal 1 

(Sept. 22, 2009) 

Payments: 4 installments (4Q09 –

 3Q10) 

Wells Fargo Proposal 2 

(Nov. 24, 2009) 

Payments: 3 installments 

Sources of capital raise: 

• $4.5 billion Prudential (private) 

common stock issuance 

• $1.2 billion employee stock 

issuance 

Put Option 

An option contract giving the owner 

the right, but not the obligation, to sell 

a specified amount of an underlying 

asset at a set price within a specified 

time. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 46

SIGTARP 11-005 September 29, 2011 

Prudential transaction would count. On November 24, 2009, Wells Fargo 

submitted a TARP repayment proposal that relied on receiving credit for the 

Prudential transaction. 

In early December 2009, regulators discussed Wells Fargo’s request to count 

stock issued privately through the Prudential transaction toward the 1-for-2 

provision. While the private transaction did not demonstrate public market 

access, it would improve the quality 

of Wells Fargo’s capital by 

increasing the institution’s common 

equity. As regulators discussed the 

request, on December 3, 2009, one 

day after FRB approved Bank of 

America’s TARP repayment plan, 

Wells Fargo submitted a proposal to 

repay half, or $12.5 billion, of 

Treasury’s $25 billion TARP 

investment by the end of 2009, and to repay the remainder in the second quarter 

of 2010. The institution proposed to use the 1-for-2 expedited repayment 

provision for the first payment, in part by using the $4.5 billion common stock 

issued through the Prudential transaction. 

However, FDIC indicated the Prudential transaction did not meet the 

requirements of the expedited repayment provision established in the 

November 2009 guidance. On December 7, 2009, at the bank’s request, FDIC 

and Wells Fargo met to discuss the transaction. During the meeting, then-FDIC 

Chairman Bair and other FDIC officials told Wells Fargo that the plan would 

have to comply with the November 2009 guidance and that FDIC was not 

supportive of counting the Prudential transaction toward the 1-for-2 provision. 

Regulators Informed Wells Fargo that only a Proposal for Full TARP 

Repayment Could Provide the Institution with Certainty 

Although Wells Fargo planned to 

make partial TARP repayments, 

officials from the Federal Reserve 

Bank of San Francisco (“FRB San 

Francisco”) told SIGTARP that the 

bank also sought to signal certainty 

to markets by publicly stating that 

regulators had fully approved a plan 

that would allow for an exit from 

TARP. However, according to 

regulators, only the immediate 

portion of a multi-stage repayment 

plan could be approved, so the 

Wells Fargo Proposal 3 (Dec. 3, 2009)

Payments: 2 installments 

Sources of capital raise: 

• $1.25 billion public common stock 

issuance 

• $4.5 billion Prudential (private) common 

stock issuance 

• $1.1 billion employee stock issuance 

Wells Fargo Proposal 4 (Dec. 10, 2009)

Payments: 2 installments 

Sources of capital raise:* 

• $2.8 billion common issuance 

• $4.5 billion Prudential (private) common 

stock issuance 

• $1.7 billion employee issuance 

• $0.4 billion capital via reduction in publicly 

identified, high risk, liquidating portfolios 

• $0.8 billion core deposit intangible 

amortization 

*Wells Fargo also proposed to use $2.8 billion 

in retained earnings 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 47

SIGTARP 11-005 September 29, 2011 

institution could not publicly announce that regulators had approved a full 

repayment plan or state definitively that it would not be required to raise 

additional capital to fund later repayments. 

FRB San Francisco officials told SIGTARP that regulators had concerns with the 

institution relying on earnings to repay over time, noting, “what if you have a bad 

quarter?” and pointing out that the economic outlook was uncertain in late 2009. 

The only way for the institution to signal certainty to markets regarding its exit 

from TARP was to repay all of Treasury’s $25 billion investment in full. 

Moreover, these officials noted, because regulators might not allow the Prudential 

transaction to count toward the 1-for-2 provision, its inclusion in future proposals 

would also complicate matters and prolong deliberation. 

Nonetheless, on December 10, 2009, Wells Fargo submitted a revised proposal 

that again listed the Prudential transaction and included earnings as a key source 

of funds for repayment. The institution also continued to propose repayment over 

two installments – approximately 

$14 billion in January 2010 and the 

remaining $11 billion by 

March 31, 2010. Wells Fargo pointed 

to Bank of America’s recent capital 

raise, which did not consist entirely of 

newly issued common stock, and stated 

that similar principles should also 

apply to Wells Fargo. However, given 

its reliance on the Prudential 

transaction, officials from both FRB 

and FDIC considered the proposal 

unacceptable. 

On December 11, 2009, Wells Fargo 

submitted a new proposal, almost 

doubling the amount of common stock 

it proposed to issue, but still including 

the Prudential transaction and adding 

gains on asset sales. While OCC was 

supportive of this proposal, FDIC was 

not. Wells Fargo submitted a second 

proposal that day, which, among other adjustments, increased the amount of 

employee stock it proposed to issue and the amount of proceeds it proposed to 

generate from asset sales. 

Wells Fargo Proposal 5 (Dec. 11, 2009)

Payments: 2 installments 

Sources of capital raise:* 

• $5.0 billion common issuance 

• $4.5 billion Prudential (private) common 

stock issuance 

• $1.7 billion employee issuance 

• $0.5 billion gain on asset sale 

• $0.4 billion capital via reduction in publicly 

identified, high risk, liquidating portfolios 

• $0.8 billion core deposit intangible 

amortization 

*Wells Fargo also proposed to use 

$2.8 billion in retained earnings

Wells Fargo Proposal 6 (Dec. 11, 2009) 

Payment: 1 installment 

Sources of capital raise: 

• $5.0 billion common issuance 

• $4.5 billion Prudential (private) common 

stock issuance 

• $2.25 billion employee issuance 

• $1.5 billion post-tax profit on asset sale 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 48

SIGTARP 11-005 September 29, 2011 

Agreement Was Reached Soon After Wells Fargo Removed the 

Prudential Transaction and Increased the Amount of Common Stock 

It Proposed to Issue 

On Saturday, December 12, 2009, 

after a week of media speculation 

that Citigroup was negotiating 

repayment of TIP, Wells Fargo 

significantly revised its repayment 

proposal, more than doubling the 

proposed public issuance to 

$10.4 billion and removing the 

Prudential transaction. With the 

encouragement of FRB San Francisco, Wells Fargo also included the possibility 

of an overallotment option, which could reduce or eliminate the $1.35 billion in 

common stock issued to employees. Over the weekend, Wells Fargo and FRB 

worked to review the specific assets Wells Fargo proposed to sell and to develop a 

proposal that addressed regulators’ preference for first reducing asset sales rather 

than the employee stock issuance in the event the overallotment was exercised. 

On Monday, December 14, 2009, the 

same day that Citigroup announced 

its agreement with Treasury and 

regulators to repay TARP funds 

received through TIP, FDIC agreed 

to Wells Fargo’s proposal as long as 

asset sales would be eliminated first 

by the exercise of the overallotment 

option. An FDIC official noted, 

“We would expect that the green shoe would cover the entire amount of the raise 

if demand is sufficient.” Around midday, Wells Fargo submitted its final 

proposal to regulators, which conformed to regulators’ expectations regarding 

asset sales. That afternoon, FRB approved Wells Fargo’s CPP repayment request, 

and the institution announced shortly thereafter that it had reached an agreement 

with regulators to repay Treasury and exit TARP. 

Wells Fargo CEO Stumpf told SIGTARP that multiple factors were driving the 

bank’s timeline to have its TARP repayment approved, including time pressures 

to settle the Prudential transaction by early January 2010 and to access equity 

markets before the end-of-year holidays. In discussing the decision to repay in 

full by the end of 2009, Mr. Stumpf told SIGTARP, “I recall being guided by 

what would be best for shareholders – and simply that.” Regulators also noted to 

SIGTARP that Wells Fargo shareholders likely held a great deal of influence over 

the company’s repayment proposals. Referring to the bank’s shareholders, an 

FDIC official commented to SIGTARP, “It’s a very vocal group at Wells Fargo. 

They’re legendary.” 

Wells Fargo Proposal 8 (Dec. 14, 2009)

Payment: 1 installment 

Sources of capital raise: 

• $10.4 billion common issuance (plus 

overallotment option) 

• $1.35 billion employee issuance 

• $1.5 billion post-tax profit on asset sales 

(to go first, if overallotment exercised) 

Wells Fargo Proposal 7 (Dec. 12, 2009)

Payment: 1 installment 

Sources of capital raise: 

• $10.4 billion common issuance (plus 

overallotment option) 

• $1.35 billion employee issuance (to go 

first, if overallotment exercised) 

• $1.5 billion post-tax profit on asset sale 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 49

SIGTARP 11-005 September 29, 2011 

However, encouragement from Treasury may have also contributed to Wells 

Fargo’s decision to repay in full through a one-time stock issuance. A letter 

attached to Wells Fargo’s November 24, 2009, repayment proposal stated that 

Wells Fargo was “asked by the U.S. Treasury to repay TARP.” The former Wells 

Fargo CFO who signed the letter told SIGTARP that then-Treasury Assistant 

Secretary Herb Allison and Wells Fargo CEO Stumpf discussed Treasury’s desire 

to see Wells Fargo repay TARP and Treasury’s concern about the market’s 

perception of the institution if it remained in TARP while its peers repaid. Mr. 

Stumpf told SIGTARP he had a “couple of conversations” with Assistant 

Treasury Secretary Allison, but recalled only discussing warrants and loan 

modifications, rather than Wells Fargo’s repayment plans. Secretary Geithner, 

however, told SIGTARP that he asked Assistant Secretary Allison to encourage 

institutions to repay. According to Secretary Geithner, Treasury believed “the 

financial system would be stronger if [TARP institutions] could demonstrate they 

could raise private capital. So if you put pressure on firms to seek private capital, 

the system becomes stronger.” Assistant Secretary Allison told SIGTARP that he 

spoke to most of the remaining SCAP institutions about their TARP repayment 

plans and that while it was up to regulators to decide when institutions would be 

allowed to repay, “the message was that we want the money back as soon as you 

can do this.” He added that firms also wanted to repay “because of executive 

compensation and the negative stigma TARP had.” 

Wells Fargo Completed a Successful Common Stock Offering and 

Exited TARP 

On December 14, 2009, Wells Fargo announced its $10.4 billion common stock 

offering plus a $1.56 billion overallotment option. The next day, Wells Fargo 

priced the $10.65 billion offering at $25 per share and completed its offering by 

the end of the day, including fully subscribing the overallotment option. Its total 

raise of $12.25 billion eliminated the need for any asset sales and reduced the 

amount of shares issued to employees pursuant to the TARP repayment 

agreement. 

The following week, on December 23, 2009, Wells Fargo wired $25 billion plus 

accrued dividends to Treasury, fully repaying the CPP investment and exiting 

TARP. It was the same day that Citigroup repaid TIP and terminated its 

participation in AGP. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 50

SIGTARP 11-005 September 29, 2011 

PNC’s TARP Exit 

This section details the events leading to PNC’s repayment of and exit from TARP 

in February 2010. PNC’s repayment proposals included counting the sale of a 

subsidiary toward the 1-for-2 repayment option, seeking credit for both the profit 

and reduction of goodwill from the sale. After PNC received approval for TARP 

repayment and commenced its public offering, regulators and PNC realized they 

held different understandings of the role of the overallotment in TARP repayment 

and PNC’s limited control over whether the overallotment was exercised. 

Figure 8 below shows the timeline of key events related to PNC’s repayment and 

exit from TARP. 

FIGURE 8 

KEY TARP REPAYMENT EVENTS FOR THE PNC FINANCIAL SERVICES GROUP (PNC) 

Sources: SIGTARP, OFS, FRB, FDIC, PNC, Wells Fargo, Citigroup, and Bank of America. 

SEP 2009 OCT 2009 NOV 2009 DEC 2009 JAN 2010 FEB 2010 

The PNC Financial Services Group (PNC) 

Post-Nov 2009 Guidance Repayments 

Nov 24, 2009 

PNC submits plan to repay 

in “shareholder friendly 

manner” in 2Q 2010 

Dec 17, 2009

PNC accelerates 

repayment plan to 

1Q 2010 

Feb 1-2, 2010 

PNC submits final proposal; 

FRB approves 2/02; 

PNC announces offering 

> $3.5B ISSUANCE*** 

Feb 10, 2010 

PNC repays $7.6B 

and exits TARP 

Nov 3, 2009 

FRB issues nonpublic revised 

guidance with 1-for2 expedited 

repayment option 

Nov 24, 2009 

Deadline for 

repayment plans 

required by FRB 

guidance 

Dec 9, 2009 

BAC repays $45B and 

exits TARP 

Dec 13-14, 2009 

C submits final proposal 

to repay TIP and 

terminate participation in 

AGP; FRB approves on 

12/14; C announces 

offering 

> $17.6B ISSUANCE**

Dec 14, 2009 

WFC submits final proposal 

FRB approves; WFC 

announces offering 

> $12.2B ISSUANCE 

Dec 23, 2009 

C repays $20B and AGP is 

terminated 

WFC repays $25B and 

exits TARP 

Dec 1-2, 2009 

BAC submits final proposal; 

FRB approves on 12/2; BAC 

announces equity offering 

> $19.3B ISSUANCE*

Note: Issuances occurred after announcement and were completed at a later date 

*BAC issued common equivalent securities, which converted to common stock on Feb 24, 2010 

**C also issued $3.5B in tangible equity units 

***PNC also issued $2B in debt 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 51

SIGTARP 11-005 September 29, 2011 

PNC Accelerated Its TARP Repayment Plans After Other SCAP 

Institutions Repaid in December 2009 

PNC, the 12th-largest U.S. bank holding company, was the fourth SCAP 

institution to repay TARP in the months immediately following the issuance of 

the November 2009 revised repayment guidance. As early as June 2009, PNC’s 

CEO James Rohr was publicly quoted as stating that the institution was going to 

repay TARP “in a shareholderfriendly manner.” After reviewing the 

November 2009 guidance, PNC 

initially declined to seek expedited 

repayment through the 1-for-2 option, 

instead opting to wait for FRB to 

complete its review of the institution’s 

longer-term capital plan. Its 

November 24, 2009, repayment plan 

stated its intent to wait until the 

second quarter of 2010 to fully repay 

Treasury’s $7.6 billion CPP investment by using various sources of capital, 

including proceeds from a $1 billion common stock offering and the sale of its 

subsidiary service unit, PNC Global Investment Servicing (“PNC Global”).61

However, on December 17, 2009, just days after Citigroup and Wells Fargo 

announced reaching an agreement with regulators to repay TARP, PNC submitted 

a revised TARP repayment proposal to the Federal Reserve Bank of Cleveland 

(“FRB Cleveland”), proposing to accelerate repayment to the first quarter of 2010 

and increase the common stock 

issuance to $1.6 billion. Though well 

short of a 1-for-2 common stock 

issuance, PNC stated that the terms 

were consistent with the expedited 

repayment option under the 

assumption that FRB would count the 

capital benefits generated through the 

sale of PNC Global toward meeting 

the provision. 

 

61 PNC Global was the largest single-source provider to the U.S. mutual fund industry and a servicer of the global 

investment industry. 

PNC Proposal 1 (Nov. 24, 2009) 

Repay in 2Q10 

• $1 billion common issuance 

• $1.6 billion dividends upstreamed from 

bank 

• $2.1 billion asset sale (PNC Global) 

• $3.6 billion debt and/or hybrid 

instruments ($0.3 billion for TARP 

repayment; $3.3 billion to meet liquidity 

policy levels) 

PNC Proposal 2 (Dec. 17, 2009)

Repay in 1Q10 

• $1.6 billion common issuance 

• $1.7 billion asset sale (PNC Global)* 

 $0.7 billion post-tax profit 

 $1.1 billion reduction in goodwill 

• $0.8 billion other asset sale 

• $2.4 billion debt 

* Figures do not total due to rounding. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 52

SIGTARP 11-005 September 29, 2011 

PNC Requested that Goodwill Reductions from Asset Sales 

Be Counted Toward Repayment 

Though FRB’s repayment guidance did 

not mention the sale of assets, the sale of 

PNC Global was a key component of 

PNC’s repayment strategy. By 

November 16, 2009, PNC had already 

identified, contacted, and met with five 

potential buyers, receiving preliminary 

bids from at least three of them. PNC 

estimated the sale price at $2.3 billion, 

which would generate approximately 

$1.6 billion in capital benefits for the 

firm, of which approximately 

$500 million represented PNC’s profit on 

the transaction after deducting taxes. The remaining $1.1 billion was generated by 

replacing goodwill with cash. 

While PNC’s capital ratios would improve from the reduction in goodwill 

resulting from the sale of PNC Global, the sale would generate no new common 

equity for the institution. Further, no credit for the reduction of goodwill had 

previously been given to other institutions seeking an expedited TARP 

repayment. However, PNC argued 

that because the institution would sell 

PNC Global at a value that equaled 35 

times the subsidiary’s 2009 earnings, 

the sale would generate substantial 

cash without significantly reducing 

future earnings. PNC further noted 

that the loss absorption capacity of the 

capital raised through asset sales was 

no different than that of capital raised 

through the issuance of new common 

stock. 

On January 15, 2010, PNC proposed 

to increase the common stock offering 

to $2.4 billion and listed multiple 

options for crediting the gains from the 

sale of PNC Global, but regulators had 

yet to agree on whether the reduction 

in intangible assets would receive credit toward the 1-for-2 provision. 

Goodwill

An intangible asset that, in an acquisition, 

represents the amount paid for a company 

over the fair value of its assets. 

Goodwill, like other intangible assets, is 

excluded from regulatory Tier 1 Capital. 

The reduction of goodwill associated with 

asset sales – all else equal – increases 

Tier 1 Capital and Tier 1 Common ratios 

by reducing the amount of intangibles that 

a firm is required to exclude from 

regulatory capital. 

PNC Proposal 3 (Jan. 15, 2010) 

• $2.4 billion common issuance 

• From sale of PNC Global: 

 $0.7 billion post-tax profit at 1:2 

 OR 

 $1.7 billion post-tax profit & goodwill 

reduction at 1:1 

• Remainder via other asset sales at 1:1 

PNC Proposal 4 (Jan. 22, 2010) 

• $2.5 billion common issuance 

• $1.6 billion sale of PNC Global 

 $0.5 billion post-tax profit 

 $1.1 billion goodwill reduction 

• $0.6 billion other future asset sales 

• $0.8 billion contingent common (only if 

PNC Global fails to close) 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 53

SIGTARP 11-005 September 29, 2011 

PNC’s next repayment proposal, sent on January 22, 2010, increased the proposed 

common stock offering by another $100 million to $2.5 billion, while still 

requesting credit for the $1.1 billion in reduction of goodwill. OCC supported 

PNC’s proposal and was concerned that requiring more issuance might 

incentivize PNC to remain in CPP and repay through earnings over time – an 

outcome OCC did not want. However, neither FDIC nor FRB approved of the 

proposal, and both regulators suggested the institution submit a proposal that 

included a larger common stock offering. 

FDIC Consented to a Goodwill Reduction for Asset Sales but 

Pushed for a $4 Billion Common Issuance 

PNC wanted to announce both the PNC Global sale and the TARP repayment at 

the same time on Monday, February 1, 2010. However, on January 28, The Wall 

Street Journal published an article 

leaking details of the then-secret sale 

of PNC Global and its connection 

with PNC’s TARP repayment efforts. 

The next day, FDIC suggested to 

PNC’s CEO Rohr that the bank issue 

$4 billion in common stock. 

According to an FDIC email, Mr. 

Rohr rejected the idea. 

Instead, on January 30, 2010, PNC sent FDIC a revised repayment plan, proposing to 

issue $3 billion in common stock, along with the sale of PNC Global, but also including 

the “potential exercise” of a $450 million overallotment option to supplement the public 

offering. In addition, it extended the proposed closing date of the PNC Global 

transaction from the second to the third quarter of 2010, and included a $1.5 billion to 

$2.0 billion debt issuance. The debt issuance was critical to maintaining PNC’s liquidity 

given the timing between the repayment of $7.6 billion of TARP funds in the first quarter 

of 2010 and the cash replenishment expected from completing the sale of PNC Global 

later in the year. 

While staff reviewed PNC’s latest proposal, then-FDIC Chairman Bair requested FRB’s 

support for FDIC’s position that PNC issue $4 billion of common stock. The additional 

capital raise that FDIC sought to require would have limited the decrease in PNC’s Tier 1 

Capital cushion resulting from CPP repayment, reflecting the concern that then-Chairman 

Bair expressed to SIGTARP about protecting FDIC’s exposure to TLGP. 

Ultimately, regulators, including FDIC, agreed to allow a smaller offering, with 

the overallotment option, under the condition that PNC commit to additional asset 

sales should key capital ratios fall below minimum levels. PNC agreed to 

backstop the maintenance of its regulatory capital ratios – including its Tier 1 

Common ratio – until June 30, 2011, with the commitment to sell common equity 

or assets as part of its CPP repayment terms. 

PNC Proposal 5 (Jan. 30, 2010)

• $3.0 billion common issuance 

• $0.45 billion overallotment option 

(potentially exercised; may reduce 

amount of debt issued)

• $1.8 billion sale of PNC Global 

• $1.5-2.0 billion debt issuance (to maintain 

liquidity until sale closes)
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 54

SIGTARP 11-005 September 29, 2011 

PNC Approved for Repayment but Understanding Differed on the 

Role of the Overallotment Option 

On the evening of February 1, 2010, PNC submitted a revised proposal specifying 

that the overallotment option, if exercised, would serve as a backstop to the sale 

of PNC Global. FRB and FDIC 

worked to develop language for the 

maintenance of PNC’s regulatory 

capital ratios and to ensure a clear 

understanding of the linkage 

between PNC’s debt issuance and its 

liquidity given the lag between 

TARP repayment and the closing of 

PNC Global. 

Early on February 2, 2010, BNY 

Mellon announced that it would 

acquire PNC Global. That day, an 

FDIC email indicated that thenChairman Bair spoke with Mr. Rohr 

and was comfortable with repayment as long as the overallotment option was 

filled. Then-Chairman Bair confirmed to SIGTARP that PNC called her and 

“personally assured [her] they would exercise” the overallotment option. 

According to FRB, similar communications took place between PNC and FRB. 

PNC informed SIGTARP that the bank did not intend to suggest that it was in a 

position to commit the underwriters to exercise the option. As previously 

discussed, the overallotment is an option granted to the underwriter by the 

company offering shares. While 

the option creates an opportunity 

to sell more shares than originally 

planned, it also serves to protect 

underwriters by ensuring access to 

additional shares at the offering 

price in the event that shares are 

oversold and their price increases. 

PNC told SIGTARP that while it 

expected PNC’s underwriters to 

exercise the overallotment option, 

the decision was ultimately at the 

discretion of the underwriter and 

thus, never within PNC’s control. 

Later on February 2, a PNC executive re-sent the previous day’s written 

repayment proposal, and listed in the email among “terms agreed to/confirmed 

this morning,” PNC’s agreement to use its “best efforts” to exercise the 

overallotment. That afternoon, FRB approved the repayment request, and within 

PNC Proposal 6 (Feb. 1, 2010) 

• $3.0 billion common issuance at 1:2 

• $1.6 billion sale of PNC Global at 1:1* 

 $0.5 billion post-tax profit 

 $1.1 billion goodwill reduction 

• $1.5-2.0 billion debt issuance (to maintain 

liquidity)

• Maintain Tier 1 Common, Leverage, or Tier 

1 ratios through 6/30/11 

*Backstop to PNC Global sale: 

• $0.45 billion overallotment option at 1:2 

(potentially exercised) 

OR 

• Additional equity raise and/or asset sales 

at 1:1 

PNC Proposal 7 (Feb. 2, 2010)*

• $3.0 billion common issuance at 1:2 (plus 

overallotment option)

• $1.6 billion sale of PNC Global at 1:1 (may be 

reduced if overallotment option exercised)

 $0.5 billion post-tax profit 

 $1.1 billion goodwill reduction 

• $1.5-2.0 billion debt issuance (to maintain 

liquidity)

• Sell assets and/or raise equity if Tier 1 

Common, Leverage, or Tier 1 ratios fall 

below internal minimums before 6/30/11 

*Includes terms cited in PNC’s Feb. 1 proposal 

and Feb. 2 email to regulators 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 55

SIGTARP 11-005 September 29, 2011 

a few hours, PNC publicly announced that it had reached agreement with 

regulators to repay TARP and commenced its public offering priced at $54 per 

share. Through discussions with PNC, regulators understood that the 

$450 million overallotment would be exercised if demand was sufficient. Despite 

a strong initial response allowing PNC to raise $3 billion in common equity and 

$2 billion in debt, a drop in PNC’s share price from $54 to $51 over the next few 

days caused the underwriters conducting the offering to delay filling the 

overallotment option, which they had 30 days to exercise. 

At the time, regulators expressed frustration that the overallotment option was not 

filled immediately after the offering. However, FRB informed SIGTARP that 

there was no requirement that PNC exercise the option prior to redemption. PNC 

also told SIGTARP that it made clear to its underwriters that the bank wanted the 

overallotment option to be exercised, and encouraged them to exercise the option, 

even if doing so somewhat lessened the underwriters’ profit. 

On February 10, 2010, PNC notified regulators that it repaid its CPP funds to 

Treasury. A few hours later, an FDIC official inquired with PNC about the status 

of the overallotment, noting that Mr. Rohr’s commitment to then-Chairman Bair 

regarding the overallotment option was crucial to the agency’s support for PNC’s 

repayment. FDIC and PNC held a conference call to ensure a common 

understanding of the overallotment process and the authority granted to the 

underwriter in deciding whether to exercise the overallotment option. The price 

of PNC shares gradually rose and starting February 26, 2010, reached daily highs 

of at least $54. On March 4, 2010, one day before the overallotment option was 

set to expire, PNC’s underwriters exercised the option, allowing PNC to issue an 

additional $450 million of common stock. As a result, through the offering and 

the exercise of the overallotment option, PNC issued a total of nearly $3.5 billion 

in common stock in connection with its $7.6 billion TARP repayment. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 56

SIGTARP 11-005 September 29, 2011 

Capital Quality Improved Among Bank of 

America, Citigroup, Wells Fargo, and PNC, but 

Pressures Remain 

The public equity offerings in support of Bank of America’s, Citigroup’s, and 

Wells Fargo’s TARP repayments each rank among the 10 largest in U.S. history, 

with Bank of America’s and Citigroup’s comprising two of the top three. 

Combined, the offerings totaled $49.1 billion in new common stock, including 

stock raised through the exercise of overallotment options. 

The issuances boosted each institution’s Tier 1 Common ratio – a measure of the 

capital that provides the most loss absorption capacity – at the end of 2009. A 

few months after Bank of America, Wells Fargo, and Citigroup exited, PNC’s 

$3.5 billion common stock issuance in support of its TARP repayment had a 

similar effect on the bank’s Tier 1 Common ratio. As of the second quarter of 

2011, the capital ratios of Citigroup, Wells Fargo, and PNC have improved to 

varying degrees. Citigroup has seen the most improvement to its Tier 1 Common 

ratio since first receiving TARP funds in late 2008, aided by the exchange of 

preferred shares held by both Treasury and private investors to common stock in 

2009, in addition to the common equity Citigroup raised in connection with 

TARP repayment later that year.62 However, Bank of America’s Tier 1 Common 

ratio has declined recently, reflecting in part losses of about $8.8 billion reported 

by the institution during the second quarter of 2011. To date, the same ratio for 

Wells Fargo and PNC has maintained a positive trajectory since the institutions 

repaid TARP. Figure 9 shows the Tier 1 Common ratios of all four institutions 

from the first quarter of 2009 through the second quarter of 2011. 

 

62 Citigroup also sold off a number of non-core businesses through its “Citi Holdings” division, reducing the amount of 

assets the institution held by $128 billion in 2010. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 57

SIGTARP 11-005 September 29, 2011 

FIGURE 9 

TIER 1 COMMON RATIOS OF BANK OF AMERICA, CITIGROUP, WELLS FARGO, AND PNC 

Source: SIGTARP analysis of Bloomberg data. 

Note: Quarterly data reflect the Tier 1 Common equity ratio at the end of each quarter. 

While the quality of capital improved with TARP repayment, each institution’s Tier 1 

Capital ratio – which includes both preferred and common equity elements – initially 

declined as TARP capital was not replaced dollar for dollar. In recent quarters, the Tier 1 

Capital ratios of Citigroup, Wells Fargo, and PNC have edged above pre-repayment 

levels, though Bank of America’s remains lower. According to FDIC, to varying 

degrees, each institution’s capital base remains pressured by mortgage-related costs 

associated with credit, servicing, and litigation, along with recent uncertainty in European 

markets. Figure 10 on the following page shows the Tier 1 Capital ratios of all four 

institutions from the first quarter of 2009 through the second quarter of 2011. 

 

0

2

4

6

8

10

12

14

2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2

Percent

Bank of America

Citigroup

Wells Fargo

PNC
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 58

SIGTARP 11-005 September 29, 2011 

FIGURE 10 

TIER 1 CAPITAL RATIOS OF BANK OF AMERICA, CITIGROUP, WELLS FARGO, AND PNC 

Source: SIGTARP analysis of Bloomberg data. 

Note: Quarterly data reflect the Tier 1 Capital ratio at the end of each quarter. 

0

2

4

6

8

10

12

14

16

2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2

Percent

Bank of America

Citigroup

Wells Fargo

PNC
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 59

SIGTARP 11-005 September 29, 2011 

Conclusions 

In the first several months of TARP, Treasury invested approximately 

$200 billion in financial institutions under terms that, with certain exceptions, 

prohibited repayment for three years. Despite the dramatic efforts by the 

Government to inject this capital, by early 2009, the market still lacked 

confidence in some of the nation’s largest financial institutions and some TARP 

banks complained of a TARP stigma. On February 17, 2009, the American 

Recovery and Reinvestment Act of 2009 removed the three-year restriction, and 

in the following weeks, some TARP recipients proposed to repay Treasury and 

exit TARP. With encouragement from Treasury, and in an effort to ramp back 

Government ownership in these institutions, Federal banking regulators, including 

FRB, FDIC, and OCC, scrambled to develop criteria and guidance to evaluate a 

bank’s TARP exit proposal. 

On June 1, 2009, FRB issued TARP repayment guidance specific to SCAP 

institutions – the large banks subject to the stress tests conducted by regulators in 

early 2009. Approximately 80% ($163.5 billion) of all CPP funds went to 17 

SCAP banks. The June guidance focused on capital – specifically, the TARP 

recipient’s ability to satisfy requirements such as demonstrating access to equity 

markets by issuing new common stock. FRB officials told SIGTARP that the 

amount of common stock each institution was required to raise was driven in part 

by the results of the recently completed stress tests. Based on the June guidance, 

the SCAP institutions that met the stress test capital targets became eligible to 

repay TARP, and nine did so on June 17, 2009. The remaining eight SCAP 

institutions in TARP, which included some of the nation’s largest banks, such as 

Bank of America, Citigroup, Wells Fargo, and PNC, were viewed by regulators at 

that time as weaker than those that had been permitted to repay in June. 

Regulators decided that these remaining SCAP banks in TARP needed to meet 

stricter criteria before regulators would consider their TARP exit requests. 

Revised guidance issued by FRB and developed in consultation with Treasury and 

the other regulators in November 2009 offered the remaining SCAP institutions in 

TARP an option for expedited repayment of TARP funds. The November 

guidance provided that subject to satisfying SCAP requirements, the remaining 

institutions “may be permitted” to repay all or part of Treasury’s TARP capital if 

they “issue at least $1 in new common equity for every $2” in TARP repaid, 

referred to as the “1-for-2” provision. FRB and FDIC agreed that the 1-for-2 was 

a minimum requirement for expedited repayment, and that some institutions, such 

as Citigroup, would need to raise additional common stock beyond the 1-for-2. 

In developing the 1-for-2 provision, regulators were focused on the ability of the 

institution to absorb losses once Government support through TARP was 

removed. An FRB official told SIGTARP that this ratio was based upon the 

results of the stress tests, which gave FRB insight into the level of capital required 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 60

SIGTARP 11-005 September 29, 2011 

to buffer the SCAP institutions in the event of particularly adverse market 

conditions. FRB Governor Tarullo, Chairman of FRB’s Committee on Bank 

Supervision, told SIGTARP that the regulators agreed on a public capital raise 

requirement to make sure that post-TARP the institutions were effectively 

functioning market intermediaries that could stand up to adverse conditions. He 

added that one lesson of the financial crisis was that the markets primarily cared 

about common equity, rather than other types of capital, and that FRB would not 

allow an institution to repay TARP without it having enough capital to absorb 

losses. 

Shortly after FRB issued the November 2009 guidance, some of the largest 

remaining TARP institutions – Bank of America, Wells Fargo, and PNC – sought 

expedited repayment, but balked at meeting the requirement of a 1-for-2 common 

stock issuance, seeking instead to combine a smaller common stock issuance with 

other methods of raising capital, such as selling assets and issuing employee 

stock, that remove sources of future revenue or do not provide market validation. 

Citigroup, which was required to issue new common stock beyond the 1-for-2, 

also initially submitted proposals that fell short of regulators’ expectations. Bank 

of America, Citigroup, and Wells Fargo ultimately repaid TARP investments in 

December 2009, followed soon after by PNC. For these institutions, the path to 

TARP repayment was far more complex and contentious than it had been for the 

institutions that repaid in June 2009, revealing both strengths and weaknesses in 

the TARP exit process. 

SIGTARP found that interagency sharing of data, vigorous debate among 

regulators, and hard-won consensus increased the amount and improved the 

quality of the capital that SCAP institutions were required to raise to exit TARP. 

FRB was the primary regulator for these institutions and was responsible for 

recommending to Treasury whether or not a company should be allowed to repay. 

FRB agreed to consult with FDIC and OCC, and often with Treasury, on 

repayment proposals. That consultation often generated both conflict and 

frustration due to varied and occasionally conflicting policy approaches. FDIC, 

exposed through its deposit insurance fund and its emergency lending program, 

was by far the most persistent in insisting that banks raise more common stock. 

The checks-and-balances that resulted from this interagency coordination helped 

to ensure that the nation’s largest financial institutions were better capitalized 

upon exiting TARP than prior to TARP. However, three aspects of the TARP exit 

process serve as important lessons learned from the financial crisis. 

First, Federal banking regulators were prepared to and did relax the revised 

repayment criteria only weeks after that criteria had been established, bowing at 

least in part to a desire to ramp back the Government’s stake in financial 

institutions and to pressure by institutions seeking a swift TARP exit to avoid 

executive compensation restrictions and the stigma associated with TARP 

participation. The large financial institutions seeking to exit TARP were notably 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 61

SIGTARP 11-005 September 29, 2011 

persistent in their efforts to resist regulatory demands to issue common stock, 

seeking instead more creative, cheaper, and less sturdy alternatives that provide 

less short- or long-term loss protection than new common stock. Some SCAP 

institutions pushed back against the 1-for-2 common stock provision, seeking to 

minimize the dilution to shareholders that would result from a surge of new 

common shares and, in at least one case, warning of possible failed public 

offerings that might erode market confidence. To varying degrees, regulators 

bent to these concerns, relaxing the repayment requirement by allowing banks to 

replace some amount of new common stock issuance with other actions such as 

asset sales or the issuance of trust preferred securities or employee stock. 

Because the regulators failed to adhere to FRB’s clearly and recently established 

requirements, the process to review a TARP bank’s exit proposal was ad hoc and 

inconsistent. 

Second, by not waiting until the banks were in a position to meet the 1-for-2 

provision entirely with new common stock, there was arguably a missed 

opportunity to further strengthen the quality of each institution’s capital base to 

protect against future losses without diminishing future revenues. Despite the fact 

that the regulators had established the 1-for-2 minimum weeks before as 

necessary for each bank to absorb losses under adverse market conditions, the 

discussion quickly switched to analysis of how much each bank could raise in 

new common stock during a frenzied period where each of these TARP banks 

wanted to exit at that time based in part on news that other large banks were 

exiting TARP. Concerned about a lack of market confidence that might result 

from being the last large bank to exit TARP, and executive compensation 

restrictions, banks argued that the market would not support a 1-for-2 common 

stock issuance. Meanwhile, regulators feared that a failed offering would have 

devastating consequences. 

Rather than wait until the markets could bear a 1-for-2 common stock issuance, 

the regulators accepted repayment terms that were based on what the market 

could bear at that time. During these discussions, FDIC remained a holdout, 

arguing that the 1-for-2 provision had to be met with only new common stock. 

For example, regarding Bank of America’s TARP exit, then-FDIC Chairman Bair 

told SIGTARP that “the argument [FRB and OCC] used against us – which 

frustrated me to no end – is that [Bank of America] can’t use the 2-for-1 because 

they’re not strong enough to raise 2-for-1. That just mystified me. The point was 

if they’re not strong enough, they shouldn’t have been exiting TARP.” However, 

FRB Governor Tarullo told SIGTARP that it was not about Bank of America’s 

strength, but instead about how much the market could absorb at that time. ThenFRB Vice Chairman Kohn also stated that FRB wanted to push Bank of America 

and Citigroup but was concerned that “if they went out for something and didn’t 

get it, it would be a vote of no confidence.” The institutions arguably missed an 

opportunity to wait until the market could absorb a 1-for-2 common stock 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 62

SIGTARP 11-005 September 29, 2011 

issuance, which would have had long lasting consequences in further 

strengthening the quality of their capital base. 

Third, SIGTARP also found that Treasury encouraged TARP banks to expedite 

repayment, opening Treasury to criticism that it put accelerating TARP repayment 

ahead of ensuring that institutions exiting TARP were sufficiently strong to do so 

safely. Secretary Geithner told SIGTARP that putting pressure on firms to raise 

private capital was part of a “forceful strategy of raising capital early” and “We 

thought the American economy would be in a better position if [the firms] went 

out and raised capital.” Treasury’s involvement was also more extensive than 

previously understood publicly. In testimony before Congress, Treasury officials 

repeatedly explained that regulators decide when it is appropriate for a bank to 

repay Treasury. However, while regulators negotiated the terms of repayment 

with individual institutions, Treasury hosted and participated in critical meetings 

about the repayment guidance, commented on individual TARP recipient’s 

repayment proposals, and in at least one instance urged the bank (Wells Fargo) to 

expedite its repayment plan. 

The result was nearly simultaneous repayments by Bank of America, Wells 

Fargo, and Citigroup in an already fragile market. Bank of America’s offering of 

$19.3 billion was the largest ever common stock offering in the United States. 

The combined repayments of the three banks involved $49.1 billion in new 

common stock offerings in a span of two weeks (with PNC to follow with a 

$3.5 billion offering), despite warnings that large equity offerings might be too 

much for the market to bear. While none of the offerings failed, Citigroup 

exercised only a portion of its overallotment option and later complained that 

Wells Fargo’s simultaneous offering sapped demand for Citigroup’s stock. 

The lessons of the financial crisis and the events surrounding TARP repayments 

and exit demonstrate the importance of implementing strong capital requirements 

and holding institutions strictly accountable to those requirements. Some of the 

nation’s largest financial institutions had too little capital before the last crisis, a 

fact that not only contributed to the crisis itself but also necessitated the 

subsequent bailouts. While regulators leveraged TARP repayment requirements 

to improve the quality of capital held by the nation’s largest financial institutions 

in the wake of the financial crisis, they relaxed those requirements shortly after 

establishing them. Whether these institutions exited TARP with a strong and 

high-quality capital structure sufficient to absorb their own losses and survive 

adverse market conditions without further affecting the broader financial system 

remains to be seen. 

Federal banking regulators, along with Treasury, bear responsibility for ensuring 

that the nation’s largest and systemically important financial institutions hold 

enough high-quality capital to absorb future losses and maintain their viability in 

the event of a possible future severe shock to the financial system. The Dodd-
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 63

SIGTARP 11-005 September 29, 2011 

Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) 

includes provisions designed to address the quality of capital held by banks, such 

as prohibiting newly issued trust preferred securities from inclusion in Tier 1 

Capital calculations. In addition, the Dodd-Frank Act provides that the Financial 

Stability Oversight Council has the authority to recommend heightened capital 

standards for companies designated as systemically significant and provides for 

an orderly liquidation authority. 

There will always be tension between the protection of the greater financial 

system through robust capital requirements and the desire of individual financial 

institutions to maximize profits and shareholder returns. While striking the right 

balance is no easy task, regulators must remain vigilant against institutional 

demands to relax capital requirements while taking on ever more risk. In a recent 

speech, Governor Tarullo acknowledged that regulators had historically approved 

“increasingly diluted forms of capital under political pressures,” and warned of 

the “slippery slope effect” that results from allowing lower quality capital to 

comprise an ever-increasing portion of a bank’s capital structure. 

Today, some institutions remain too big, too interconnected, and too essential to 

the global financial system such that their failure or severe distress could 

potentially trigger serious consequences to the broader economy. Unless and until 

such institutions, either on their own accord or through regulatory pressure or 

requirements, are restructured, simplified, and maintain adequate capital to absorb 

their own losses, they will pose a grave threat to the entire financial system. The 

greater financial system’s need for protection against the failure of those 

institutions in the next possible downturn is particularly acute. 

 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 64

SIGTARP 11-005 September 29, 2011 

Management Comments 

In its management response, which is reproduced in full in Appendix G, FRB notes that it carefully and 

thoroughly analyzed requests to repay TARP and that it put limits on the extent to which institutions were 

allowed to substitute asset sales for common equity issuance. FRB also notes that common stock issued 

through an employee stock compensation plan improves an institution’s capital structure in the same way as 

a public offering of common stock. 

FDIC did not provide a formal response to the report because unless there are recommendations for agency 

action or there are factual errors of consequence that FDIC believes require correction, it does not typically 

provide a formal written response to an invitation to review a document in advance of its publication. 

In its management response, also reproduced in full in Appendix G, OCC agrees with SIGTARP’s overall 

conclusion regarding the importance of implementing strong capital requirements and holding institutions 

accountable to such requirements. However, OCC strongly disagrees with SIGTARP’s conclusion that the 

repayment process was ad hoc and inconsistent because the regulators failed to adhere to FRB’s 

requirements, arguing that the flexibility to deviate somewhat from the guidance was pragmatic and 

necessary, and produced successful results. OCC also disagrees with SIGTARP’s conclusion that there was 

a missed opportunity to further strengthen each institution’s capital base, on the grounds that it believes 

waiting for better repayment terms would have been a riskier strategy than moving forward with the equity 

issuances. 

In its management response, also reproduced in full in Appendix G, Treasury strongly agreed with 

SIGTARP’s conclusion that interagency coordination improved the terms of TARP repayment. Treasury 

also notes that its involvement in the TARP exit process was motivated by a belief that stabilizing the 

financial system depended upon the nation’s largest financial institutions being able to raise private capital 

again, and that postponing the common stock offerings associated with repayment could have risked 

undermining investor confidence. 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 65

SIGTARP 11-005 September 29, 2011 

Appendix A – Scope and Methodology 

We performed this audit under the authority of Public Law 110-343, as amended, which also incorporates 

the duties and responsibilities of inspectors general under the Inspector General Act of 1978, as amended. 

SIGTARP undertook this audit to examine the process used by Treasury and regulators to approve the 

nation’s largest financial institutions to repay Treasury and exit TARP. Our specific reporting objectives 

were to determine Treasury’s role in the TARP repayment process and the extent to which Federal banking 

regulators have consistently coordinated and applied TARP repayment criteria for banks exiting TARP. We 

performed work at Treasury, FRB, FDIC, OCC, and OTS in Washington, D.C. We also conducted field 

interviews with current and former Government officials and bank executives in California, Florida, and 

New York. Our audit work was conducted between February 2010 and July 2011. The scope of this audit 

covered the 13 TARP repayments completed by December 31, 2010, by bank holding companies stress 

tested under SCAP. 

To determine the extent to which Federal banking regulators consistently coordinated and applied TARP 

repayment criteria, we reviewed the Emergency Economic Stabilization Act of 2008, the American 

Recovery and Reinvestment Act of 2009, general securities purchase agreements and term sheets for CPP 

investments, Treasury’s TARP transaction reports, TARP repayment guidance issued by Treasury and FRB, 

and repayment request evaluation guidance produced by FRB. We reviewed available FRB, FRBNY, FRB 

Richmond, FRB San Francisco, FRB Cleveland, FDIC, and OCC documentation, including analyses, 

documents, meeting minutes, emails, and repayment approvals for all 13 institutions covered in this audit, as 

available. We also reviewed financial institution repayment proposals, board minutes, news releases, and 

SEC filings pertaining to TARP repayments. We interviewed FRB Governor Daniel Tarullo, former FRB 

Vice Chairman Donald Kohn, former FDIC Chairman Sheila Bair, former Comptroller John Dugan, and 

Treasury Secretary Timothy F. Geithner as well as other senior officials at Treasury, FRB, FRB San 

Francisco, FDIC, and OCC to understand the process developed by Federal banking regulators and its 

implementation. We also spoke with the chief executive officers of Bank of America, Citigroup, and Wells 

Fargo, former executives of Bank of America and Wells Fargo, and senior officials of PNC to obtain their 

views on the repayment process. 

To determine Treasury’s role in the TARP repayment process, we reviewed statements and responses 

provided by Secretary Geithner and former Assistant Secretary Herbert Allison to Congress. We 

interviewed the Secretary and the former Assistant Secretary, FRB Governor Tarullo, former FRB Vice 

Chairman Kohn, former FDIC Chairman Bair, and former Comptroller Dugan as well as senior officials at 

Treasury, FRB, FRB San Francisco, FDIC, and OCC to understand the role of Treasury in TARP 

repayments. We also spoke with chief executive officers of Bank of America, Citigroup, and Wells Fargo, 

former executives of Bank of America and Wells Fargo, and senior officials of PNC to understand the 

nature of their contact with Treasury regarding TARP repayment. Additionally, we reviewed available 

Treasury, FRB, FDIC, OCC, and financial institution documentation pertaining to Treasury involvement in 

the repayment process. 

SIGTARP conducted this performance audit in accordance with generally accepted government auditing 

standards prescribed by the Comptroller General of the United States. Those standards require that 

SIGTARP plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis 
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 66

SIGTARP 11-005 September 29, 2011 

for findings and conclusions based on the audit objectives. SIGTARP believes that the evidence obtained 

provides a reasonable basis for the findings and conclusions based on the audit objectives. 

Limitations on Data 

SIGTARP relied upon Treasury and regulators to identify and provide email communication or documents 

related to TARP repayments. It is possible that the documentation provided by agencies did not reflect a 

comprehensive response to SIGTARP’s documentation requests, potentially limiting the review. 

Additionally, FRB objected to the inclusion of a significant amount of text on the grounds that it was 

confidential and that disclosure might, among other things, affect FRB’s ability to maintain open 

communication with supervised financial institutions. SIGTARP respectfully disagrees with FRB’s 

prediction of harm, but out of an abundance of caution, has removed some of the text, while reaching 

agreement with FRB on the inclusion of other portions. The exclusion of certain text somewhat limits the 

depth of information included in the report. 

Use of Computer-Processed Data 

To perform this audit, we used data provided by Treasury to report on TARP transaction amounts and dates. 

To assess the extent to which Treasury generated reliable data, we reviewed the November 2010 

Government Accountability Office (“GAO”) financial audit of Treasury’s Office of Financial Stability 

(“OFS”) financial statements for fiscal years 2010 and 2009. In GAO’s opinion, OFS’ fiscal years 2010 and 

2009 financial statements for TARP were fairly presented in all material respects. Therefore, SIGTARP 

found nothing material that would impede the use of TARP transaction report data to determine TARP 

investment and repayment amounts and dates. We also used data from Bloomberg Professional to analyze 

historical public equity offerings and the Tier 1 Common ratios and daily stock prices of select SCAP 

institutions. Because it is among the most widely used systems for financial data, we view the information 

provided by Bloomberg Professional to be the best available for purposes of our review. 

Internal Controls 

As part of the overall evaluation of the TARP repayment decision-making process, we examined internal 

controls related to the review and approval of TARP repayment requests of SCAP institutions by regulators. 

Prior Coverage 

Other oversight bodies have reported on the process by which institutions exited CPP. GAO found that the 

CPP repayment approval process “lacks adequate transparency,”63 and the Congressional Oversight Panel 

(“COP”) noted that the repayment criteria were “opaque.”64 COP also stated that “a lack of clarity 

(surrounding the repayment criteria) breeds uncertainty and instability in the financial markets and provides 

a disservice to taxpayers as well as investors.”65 In another report on CPP, GAO found that Treasury does 

not collect information on or monitor regulators’ repayment decisions, and therefore “has no basis for 

determining whether regulators evaluate similar institutions consistently and cannot provide feedback to 

 

63 Government Accountability Office, Report No. 09-658, “Troubled Asset Relief Program: June 2009 Status of Efforts 

to Address Transparency and Accountability Issues,” June 17, 2009. 64 Congressional Oversight Panel, “July Oversight Report: Small Banks in the Capital Purchase Program,” July 14, 2010. 

65 Congressional Oversight Panel, “January Oversight Report: Exiting TARP and Unwinding Its Impact on the Financial 

Markets,” January 13, 2010.
EXITING TARP: REPAYMENTS BY THE LARGEST FINANCIAL INSTITUTIONS 67

SIGTARP 11-005 September 29, 2011 

regulators on the consistency of their decision making.”66 To address this concern, GAO recommended that 

Treasury “periodically collect and review information on the analysis supporting regulators’ decisions and 

provide feedback for regulators’ consideration on the extent to which they are evaluating similar institutions 

consistently.” Treasury replied that it would consider ways to address GAO’s recommendation and noted 

that Treasury has facilitated meetings among regulators in the past. 

 

66 Government Accountability Office, Report No. 11-47, “Troubled Asset Relief Program: Opportunities Exist to Apply 

Lessons Learned from the Capital Purchase Program to Similarly Designed Programs and to Improve the Repayment 

Process,” October 4, 2010. 
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Appendix B – Role of Federal Banking Regulators 

Federal Reserve Board (“FRB”): FRB administers U.S. monetary policy and has supervisory and 

regulatory authority over bank holding companies; state-chartered banks that choose to join the Federal 

Reserve System; the U.S. operations of foreign banking organizations; certain U.S. entities that engage in 

international banking; and pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act 

(“Dodd-Frank Act”), FRB also has authority to supervise and regulate U.S. and foreign nonbank financial 

companies selected by the Financial Stability Oversight Council. The Federal Reserve works with other 

Federal and state supervisory authorities to promote the safety and soundness of the banking industry and 

fosters the stability of the broader financial system. 

Office of the Comptroller of the Currency (“OCC”): OCC, an agency within Treasury, charters, 

regulates, and supervises all National Association (“N.A.”) banks. N.A. banks are federally chartered 

(organized under the laws of the United States, as opposed to state statutes) and are incorporated under the 

National Bank Act. OCC’s nationwide staff of examiners analyze, among other things, a bank’s portfolios, 

capital, earnings, liquidity, and compliance with consumer banking laws. As of September 30, 2010, OCC 

regulated more than 1,450 national banks with total assets of approximately $8.5 trillion, comprising 

approximately 70% of commercial bank assets in the United States. 

Federal Deposit Insurance Corporation (“FDIC”): FDIC, an independent agency of the Federal 

Government, directly examines and supervises more than 4,900 banks and savings banks that are chartered 

by the states and that do not join the Federal Reserve System. To protect insured depositors, FDIC responds 

immediately if a bank or thrift institution fails, generally by selling the deposits and loans of the failed 

institution to another institution. Pursuant to the Dodd-Frank Act, FDIC also has the authority to liquidate 

failing financial companies that pose a significant risk to U.S. financial stability. FDIC also provides 

deposit insurance, which guarantees the deposits in member banks, up to $250,000 per depositor. 

Office of Thrift Supervision (“OTS”): Established as a bureau of Treasury on August 9, 1989, OTS 

charters, examines, supervises, and regulates Federal savings associations insured by FDIC. OTS also 

examines, supervises, and regulates state-chartered savings associations insured by FDIC and provides for 

the registration, examination, and regulation of savings and loan holding companies and other affiliates. 

Effective on July 21, 2011, the Dodd-Frank Act transfers the duties and authorities of OTS to FRB, FDIC, 

and OCC, and abolishes OTS 90 days after. All OTS functions relating to Federal savings associations, all 

OTS rulemaking authority for Federal and state savings associations, and the majority of OTS employees 

will be transferred to OCC. OTS’ supervisory responsibility for state-chartered savings associations and 

OTS employees to support these responsibilities will be transferred to FDIC; and OTS’ authority for 

consolidated supervision of savings and loan holding companies and their non-depository subsidiaries will 

be transferred to FRB. 
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Appendix C – Additional FAQs on Capital Purchase Program 

Repayment Published by Treasury in May 2009 

Q1. What is the policy for returning CPP money?

Under the original terms of the CPP, banks were prohibited from repaying within the first 3 years unless 

they completed a qualified equity offering. However, the provisions introduced by the American Recovery 

and Reinvestment Act of 2009 indicate that once an institution notifies Treasury that it would like to repay 

its CPP investment, Treasury must permit a TARP recipient to repay subject to consultation with the 

appropriate Federal Banking Agency. 

All institutions seeking to repay CPP will be subject to the existing supervisory procedures for approving 

redemption requests for capital instruments. Supervisors will carefully weigh an institution’s desire to 

redeem outstanding CPP preferred stock against the contribution of Treasury capital to the institution’s 

overall soundness, capital adequacy, and ability to lend, including confirming that the institution has a 

comprehensive internal capital assessment process. 

The 19 BHCs that were subject to the SCAP process must have a post-repayment capital base at least 

consistent with the SCAP buffer, and must be able to demonstrate its financial strength by issuing senior 

unsecured debt for a term greater than five years not backed by FDIC guarantees, in amounts sufficient to 

demonstrate a capacity to meet funding needs independent of government guarantees. 

Q2: What will happen to the warrants that Treasury owns in these banks?

After repaying their CPP preferred stock, institutions also have the right to repurchase the warrants issued to 

Treasury for their appraised market value. If an institution chooses not to repurchase the warrants, Treasury 

may liquidate registered warrants. The warrants cannot be sold to an investor until the bank has had an 

opportunity to repurchase them. 

Q3. How will you value the warrants that you own in banks that are repaying CPP investments?

The issuer can repurchase the warrants at “fair market value,” as defined in Section 4.9 of the Securities 

Purchase Agreement. Specifically, the bank wishing to repurchase warrants will hire an independent 

advisor that will use standard industry practices to value the warrants and will present the offer to Treasury, 

which will independently calculate its own determination of fair market value using a robust process which 

includes third party input. If those values differ, then Treasury and the bank will follow the process defined 

in Section 4.9 to reach a mutually agreed upon fair market value. 
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Q4. How will the public know when a firm has repaid its CPP preferred or repurchased Treasury’s 

warrants? 

Information on CPP preferred repayments and warrant repurchases is made available online and updated 

regularly in the TARP Transactions Reports. The reports can be found at 

http://www.financialstability.gov/latest/reportsanddocs.html. 

Q5: For CPP participants who have used the public institution transaction documents, how is the warrant 

exercise price calculated? 

Treasury is aware that there is some confusion around this calculation. All warrant exercise prices have 

been calculated in a consistent manner, taking the average of the closing prices for the 20 trading days up to 

and including the day prior to the date on which the TARP Investment Committee recommends that the 

Assistant Secretary for Financial Stability approve the investment. Please note that (i) the recommendation 

of the Investment Committee constitutes preliminary approval, but final approval of an investment occurs 

only when the transaction documents are executed and delivered by Treasury; and (ii) a trading day is 

defined as a day on which where was trading activity in a given name. 
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Appendix D – June 2009 and November 2009 TARP Repayment 

Guidance to SCAP Institutions 
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Appendix E – FRB Redemption Request Decision Memo 
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Appendix F – SCAP Institutions’ Exit from CPP 

SCAP INSTITUTIONS’ EXIT FROM CPP 

Institution 

CPP Investment 

Amount 

Date Exited CPP 

(if applicable) 

JPMorgan Chase & Co. $25,000,000,000 6-17-2009 

The Goldman Sachs Group, Inc. $10,000,000,000 6-17-2009 

Morgan Stanley $10,000,000,000 6-17-2009 

U.S. Bancorp $6,599,000,000 6-17-2009 

Capital One Financial Corp. $3,555,199,000 6-17-2009 

American Express Co. $3,388,890,000 6-17-2009 

BB&T Corp. $3,133,640,000 6-17-2009 

Bank of New York Mellon Corp. $3,000,000,000 6-17-2009 

State Street Corp. $2,000,000,000 6-17-2009 

Bank of America Corp. $25,000,000,000 12-09-2009 

Wells Fargo & Co. $25,000,000,000 12-23-2009 

The PNC Financial Services 

Group, Inc. $7,579,200,000 2-10-2010 

Citigroup Inc. $25,000,000,000 12-10-2010 

Fifth Third Bancorp $3,408,000,000 2-2-2011 

KeyCorp $2,500,000,000 3-30-2011 

Regions Financial Corp. $3,500,000,000 Has not exited 

SunTrust Banks, Inc. $4,850,000,000 3-30-2011 

GMAC (now Ally Financial) Did not participate in CPP 

MetLife Did not participate in TARP 

Source: SIGTARP analysis of Treasury Transactions Report data, 6/22/11. 
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Appendix G – Management Comments from FRB, OCC, 

and Treasury 
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Appendix H – Audit Team Members 

This review was conducted and the report was prepared under the direction of Kurt Hyde, Deputy Inspector 

General for Audit and Evaluation, and Kimberley A. Caprio, Assistant Deputy Special Inspector General for 

Audit and Evaluation, Office of the Special Inspector General for the Troubled Asset Relief Program. 

The staff members making significant contributions to this report include Shannon Williams, Daniel 

Novillo, Jean Tanaka, and Marc Geller 

 
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SIGTARP Hotline 

If you are aware of fraud, waste, abuse, mismanagement, or misrepresentations associated with the Troubled 

Asset Relief Program, please contact the SIGTARP Hotline. 

By UOnline FormU: Uwww.SIGTARP.govU By Phone: Call toll free: (877) SIG-2009 

By Fax: (202) 622-4559 

By Mail: Hotline: Office of the Special Inspector General

for the Troubled Asset Relief Program

1801 L Street., NW, 3rd Floor 

Washington, D.C. 20220

Press Inquiries 

If you have any inquiries, 

please contact our Press Office: Julie Vorman 

 Acting Director of Communications 

Julie.Vorman@treasury.gov

 202-927-1310 

Legislative Affairs 

For Congressional inquiries, 

please contact our Legislative Affairs Office: Lori Hayman 

 Director of Legislative Affairs 

ULori.Hayman@treasury.govU

 202-927-8941 

Obtaining Copies of Testimony and Reports 

To obtain copies of testimony and reports, please log on to our website at Uwww.SIGTARP.govU.