By Elizabeth Hester
June 2 (Bloomberg) -- JPMorgan Chase & Co. and American Express Co., told by regulators last month they don’t need fresh capital, will raise $5.5 billion after the Federal Reserve said any firm seeking to repay the U.S. rescue funds must first tap equity markets.
JPMorgan, the second-largest U.S. bank by deposits, will sell $5 billion of common stock, and American Express, the biggest U.S. credit-card company by purchases, plans to raise $500 million, the companies said yesterday in separate statements after the Fed issued its rule.
The companies, which got aid from the Troubled Asset Relief Program, were among nine of 19 financial firms subjected to U.S. stress tests that were deemed to have no need for additional capital. JPMorgan said the amount was set by regulators as a way to show equity markets were open to them.
“They’re the government; they can change the rules,” said Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia. “That’s the beauty of being the government.”
JPMorgan, which like AmEx is based in New York, hasn’t yet won approval to repay the $25 billion in U.S. rescue funds. Chief Executive Officer Jamie Dimon said on a conference call yesterday he would be “very surprised” if they weren’t able to refund the government in full by the end of this month.
JPMorgan expects to price its stock sale before the market opens today. Unlike rivals Morgan Stanley and Goldman Sachs Group Inc., JPMorgan hasn’t sold shares to the public this year.
Dimon, 53, who called the TARP money “a scarlet letter” and “the TARP baby” in April, made it clear that he was ready to get out from underneath government control.
‘Dear Timmy’
“Dear Timmy, we are happy to be able to pay back the $25 billion you lent us,” Dimon read yesterday from a mock letter to U.S. Treasury Secretary Timothy Geithner at the 31st Annual NYU International Hospitality Industry Investment Conference. “We hope you enjoyed the experience as much as we did.”
Dimon said on the call that repaying the U.S. should lift the bank from under government restrictions. He didn’t know how the firm would resolve the warrants sold to Treasury, and said he hoped to settle them “sooner rather than later.” The U.S. should cancel 50 percent “out of fairness,” Dimon said.
The government received warrants -- the right to buy shares at a set amount -- with almost all capital injection made from TARP. The total value of the government’s warrants is about $5 billion, according to Treasury calculations.
JPMorgan, Goldman Sachs and Morgan Stanley have applied to refund a combined $45 billion of government investments, a step that would mark the biggest reimbursement to taxpayers since the $700 billion bank bailout program began in October.
AmEx Partial Refund
AmEx will use money raised in the stock sale to partially repurchase $3.4 billion of preferred shares from the government. The company issued the shares to the Treasury’s Capital Purchase Program, which is part of the TARP rescue plan. The sale may be increased by $75 million if demand is strong.
“We’ve always viewed the Capital Purchase Program as a temporary program,” said Chief Executive Officer Kenneth I.Chenault in the statement.
An announcement on the “initial set” of redemption approvals will come during the week of June 8, the central bank said.
JPMorgan stock, up 15 percent this year through yesterday, dropped 2.1 percent to $36.11 in New York Stock Exchange composite trading. AmEx shares, up 40 percent on the year, rose 4.6 percent to $25.99. Both the company statements and the Fed’s statement were released after the close of normal trading.
The KBW Bank Index has doubled since the March 6 low on signs of possible recovery in the U.S. economy. Still, Fed officials forecast that unemployment will linger at high rates of just above 9 percent through the end of next year, showing little improvement from the April rate of 8.9 percent.
To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.
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