Like many, State Street Corp. is planning to issue stock and senior note offering to repay TARP. The bank that specializes in serving wealthy individuals as well as institutional clients received a government loan of $2 billion to weather the storm of the biggest housing crisis in U.S. history.
The bank said that its stock offering alone will be $1.45 billion so if it’s successful, it will just leave $550 million to be raised from senior debt offering.
As you remember, State Street was one of the few banks that were told by the government that they don’t need to raise additional capital in its latest stress test. Therefore, it can focus its efforts to repay TARP, something that every bank wants to do.
The government asked the bank to move its commercial paper holdings onto the balance sheet, as the value of its holdings have gone down. Last Friday, State Street did this, valuing the holdings at $16.6 billion instead of the book value of $22.7 billion. This multi-billion paper loss will hurt its future earnings. However, the company actually expects the true value of this to be much higher, and projects $475 million in interest expenses on that value alone.
The bank seems to be in a great position if the government allows it to repay TARP, which should be approved since they told the bank of its adequate capital position. I will keep you updated though, since who knows what the government will do next.
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