Reporting from Washington — Bank of America Corp. has received government permission to pay back $45 billion in taxpayer aid that helped the company survive the financial crisis, a step that would terminate the federal pay restrictions that have inhibited its search for a new chief.
Although several banks, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., have repaid capital handed out by the government last fall, Bank of America would be the first recipient of so-called extraordinary federal assistance to repay taxpayers completely. The other companies that received large-scale government investment include Citigroup Inc., General Motors, GMAC and Chrysler.
Bank of America Chief Executive Kenneth Lewis, who is scheduled to retire at the end of the year, said the repayment showed the strength of the company and the improving health of the broader economy.
"It is a milestone indicating that public policy has succeeded in helping our industry and the economy begin to recover," Lewis said in a statement Wednesday announcing government approval of the company's plan to repay the money it received under the Troubled Asset Relief Program.
Although Bank of America didn't say exactly when it would pay back the funds, it said doing so would affect the company's accounting for the current quarter, suggesting the transaction could take place this month.
The Obama administration has said that it won't accept TARP repayments unless it is sure the banks will remain in good health. Many financial analysts had not expected Bank of America to be in such a position until next year.
BofA said Wednesday it would raise additional capital from private sources to allay any concern about its health.
"We are pleased that Bank of America is moving ahead with plans to pay the taxpayers back in full," a Treasury Department spokesman said Wednesday. "As banks replace Treasury investments with private capital, confidence in the financial system increases, taxpayers are made whole, and government's unprecedented involvement in the private sector lessens."
The company's search for a new CEO has been hampered by conditions imposed on it by the federal government. Banking regulators have subjected the company to increased scrutiny, demanding improvements in risk management and the addition of people with financial experience to the board of directors.
In addition, the government's "pay czar," Kenneth R. Feinberg, has the authority to approve or veto compensation for senior executives at Bank of America and other recipients of exceptional assistance.
Some candidates to replace Lewis said they would not work under those conditions, according to a person familiar with the search.
Repaying the government in full would allow Bank of America to pay its next chief executive any amount the board sees fit.
Bank of America entered the financial crisis with a reputation as one of the nation's strongest and best-managed banks. In September 2008, however, Lewis made a fateful decision to buy troubled investment bank Merrill Lynch. In the next several months, as losses spiraled at Merrill and problems grew at Bank of America itself, the government gave the Charlotte, N.C., company $45 billion in capital and agreed to absorb some of the company's losses on a portfolio of $118 billion in troubled loans.
Bank of America said Wednesday that it would repay the government with $26.2 billion in cash on hand and $18.8 billion it plans to raise by selling securities that would eventually be converted into common stock.
One benefit: BofA would no longer be required to pay $3.6 billion in annual dividends on the federal aid.
The Treasury Department still holds warrants to purchase Bank of America stock issued in connection with the federal aid. Bank of America said it would not seek to repurchase those warrants, leaving the government free to sell them at auction.
Appelbaum writes for the Washington Post. David Cho contributed to this report.