US buys stakes worth $171 bn in financial institutions

US buys stakes worth $171 bn in financial institutions

New York: The US Federal government has bought stakes worth $171 billion in over 200 financial institutions, with Wall Street majors Citi, JPMorgan Chase and Wells Fargo receiving $25 billion each.

The Treasury Department has purchased shares in both publicly traded and private entities under its $700 billion Troubled Asset Relief Program (TARP), launched to boost the country’s beleaguered financial system.

Going by the latest transaction report of the Capital Purchase Program as of 19 December the government has pumped in $170.55 billion into 165 financial entities in exchange for preferred stocks, warrants and dividends.

Meanwhile, 14 privately-held qualified financial institutions have received government funds. Among them, Dallas-based Plain Capital Corporation has got the maximum amount of $87.6 million under TARP.

The highest amount has been allotted to banking majors — Citi, JPMorgan Chase and Wells Fargo — which have been severely hit by the credit turmoil. All the three have so far received $25 billion each.

Out of the total $700 billion, the Treasury Department has set apart $250 billion for capital purchase program.

Other privately-held financial entities which have received funds include Exchange Bank ($43 million), Bridgeview Bancorp ($38 million), Fidelity Financial Corp ($36.3 million) and Patriot Bancshares ($26 million).

In the first round of the program, the Treasury injected $125 billion for shares in nine banks — Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Wells Fargo, State Street, Merrill Lynch and Bank of New York Mellon Corp.

Interestingly, the department did not have plans to purchase stakes in companies, when the mega rescue package was unveiled in October. Rather, the focus was on buying toxic mortgage assets from the financial institutions in return for shares.

However, later the administration shelved the idea of picking up bad assets and opted for buying stakes in firms.

Major recipients of the funds under this program include Bank of New York Mellon ($3 billion), State Street Corp ($2 billion), Sun Trust Bank ($3.5 billion), BB&T Corp ($3.13 billion) and Comerica ($2.25 billion) besides others.

On Wednesday, the Federal Reserve gave the green signal for GMAC, the finance arm of auto major General Motors to become a bank holding company. With the approval, GMAC has become eligible for government funds as part of TARP.