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June 2nd, 2009
12:33 PM ET

Financial Dispatch: Banks plan to repay bailout money

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Andrew Torgan
CNN Financial News Producer

Financial giant’s American Express, J.P. Morgan Chase and Morgan Stanley have all announced plans to issue common stock in the hopes of quickly paying back taxpayer bailout money.

J.P. Morgan and American Express disclosed plans late Monday to sell $5 billion and $500 million worth of stock respectively. Morgan Stanley followed that up this morning with its own plans for a $2.2 billion offering.

J.P. Morgan was one of the first major banks to get government money when it accepted $25 billion from the Treasury Department's $700 billion Troubled Asset Relief Program back in October.

Later that year, American Express morphed itself into a bank holding company in order to gain access to $3.4 billion from the TARP. And Morgan Stanley received $10 billion as part of the program.

Banks must receive formal approval to repay bailout funds after they have satisfied government requirements. The Fed is expected to announce next week which of the 19 major banks that it ran its so-called stress tests will be allowed to pay back their loans.

In a related development, Bank of America says it’s nearly finished raising the $33.9 billion in capital that regulators said it needed to shield itself from future losses.

The nation's biggest lender by assets says it’s raised almost $33 billion since the government announced the results the stress tests nearly a month ago.

GM unloads Hummer

General Motors says it’s signed a deal to sell its Hummer unit, just one day after filing for bankruptcy.

But GM would not identify the buyer nor name a price, saying only that the deal would close by the end of September. GM revealed in April that it was courting three serious offers for the Hummer brand.

Separately, GM will have access to $15 billion dollars in government funds immediately - and up to 33-billion as needed - pending a final court hearing later this month.

And later today we’ll see just how much damage GM’s impending bankruptcy did to its sales last month. We’ll be getting U.S. car and truck sales figures for May from the major automakers throughout the day - and they’re not expected to be pretty.

Pending home sales rebound

The number of home sales contracts signed in April continued to bounce back from record lows hit last winter, posting the third consecutive month of gains.

The National Association of Realtors says its Pending Home Sales Index rose 6.7% in April after jumping 3.2% in March. That was well above the forecasts of a 0.5% increase.

Pending home sales are a forward-looking indicator since many of the contracts don't result in completed deals for many weeks or months.

Gas prices keep climbing

Gasoline prices rose 1.3-cent to $2.525 overnight, the 35th straight increase.

In the last 35 days, the average price of gas has increased 47.7 cents. But gas is still below the all-time high of $4.114 that AAA reported on July 17, 2008.

The highest gas prices are in Alaska ($2.768). The cheapest gas prices are in South Carolina ($2.333).

States feel auto pain

Finally, the downfall of the American auto industry is wreaking havoc on state and local budgets from coast to coast.

The decline in auto dealerships, coupled with the drop in car sales, is costing states and municipalities millions of dollars in lost sales taxes, not to mention lost income and property taxes and other fees.

Although exact numbers aren't available, car purchases account for about 12% to 15% of sales tax revenues in many states, according to estimates from the Center on Budget and Policy Priorities. And sales taxes usually account for about one-third of a state's revenue.

As the recession deepens, state tax revenues have fallen off a cliff. This has opened up yawning gaps, forcing officials to scramble to balance their budgets.


Filed under: Andrew Torgan • auto bailout • Economy • Finance • Gas Prices • Housing Market
soundoff (2 Responses)
  1. Annie Kate

    If local sales tax revenues are not enough to cover budgets because of the car dealerships that have closed I bet the rest of us will see an increase in our sales taxes on other purchases including food and medicine. Taxes and prices keep rising while income keeps falling – when will it ever end?

    June 2, 2009 at 8:18 pm |
  2. Michael C. McHugh

    Watch out for those rising gas prices, part of which are due to cutbacks in OPEC oil production. If those go to high, too soon, we may find ourselves right back where we started from–or worse. This is why Obama has to make nice with the Saudis and other oil exporters, if that will do any good. We're not out of the woods yet, not by a long chalk.

    June 2, 2009 at 1:26 pm |