Citi, Goldman Among Banks to Receive Government Investment, Must Accept Limits on Exec Pay
Citigroup Inc. and Goldman Sachs Group Inc. were among banks that soared in New York trading after the U.S. government said it would invest in nine of the country's biggest financial firms and guarantee debt they issue.
Shares of Morgan Stanley, Bank of America Corp., Merrill Lynch & Co. and Wells Fargo & Co. also climbed on the plan, in which the government will spend $125 billion to buy preferred stock in the companies.
"It's a good thing, it's what needs to happen, it will allow the markets to start functioning again,'' said Ralph Cole, a vice president for research at Ferguson Wellman Capital Management Inc. in Portland, Oregon, which oversees $2.7 billion including shares in JPMorgan, Wells Fargo and Goldman. "We'll know if it's working when we see if overnight rates go down and banks start lending to each other.''
Citigroup, JPMorgan, Bank of America and Wells Fargo will each receive $25 billion, according to people familiar with the matter, while Morgan Stanley and Goldman will get $10 billion. Bank of New York Mellon Corp. will receive about $3 billion and State Street Corp. will get about $2 billion, the companies said today.
The investments are part of a $250 billion plan to put capital into U.S. financial institutions, which have been burdened by bad loans and rising borrowing costs.
Golden Parachutes
Participating banks will need to accept limits on executive pay and so-called golden parachute payments. They also will need to give the Treasury warrants for an amount equal to 15 percent of the senior preferred investment, with a strike price determined by the bank's share price at the time of issuance.
Goldman and Morgan Stanley were raised to "buy'' from "hold'' today by Citigroup analyst Prashant Bhatia.
"Earnings power and fundamentals are front and center once again,'' Bhatia wrote in a note today. "Based on our earnings estimates and solvency issues taking a back seat, the shares of Morgan Stanley & Goldman Sachs have significant upside.''
Below is a list of the banks in which the Treasury plans to invest:
Citigroup $25 Billion
JPMorgan $25 Billion
Bank of America/Merrill $25 Billion
Wells Fargo $25 Billion
Goldman Sachs $10 Billion
Morgan Stanley $10 Billion
Bank of New York Mellon $3 Billion
State Street $2 Billion
Published on October 14, 2008
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