TARP Exits Boost Bank Fees - and Pay

Capital markets bankers are reaping a fee and bonus windfall from capital-raising deals tied to repaying their own bailout aid to the U.S. government.

Fees of $5.4 billion for underwriting U.S. follow-on share offerings of financial companies during the past two years exceeded the $4.8 billion cumulative total for the previous 20 years, Andrew Ross Sorkin writes in the New York Times, citing Thomson Reuters data.

When investment banking dried up during 2008, government equity injections into banks themselves became one of the few sources of large-scale transactions. Now that process is unwinding and banks are earning fees - and in some cases paying themselves - to manage more than $50 billion of offerings aimed at replacing the capital they're buying back from the government.

Gratitude to Geithner

And those fees, Sorkin notes, are likely to factor into the bonuses for the investment bankers who worked on the deals. One banker told Sorkin he has this message for Treasury Secretary Timothy Geithner: "Thank you."

December was the biggest month in history for offerings, the Times says. Bank of America, Citigroup and Wells Fargo alone sold some $48 billion in new shares in order to exit TARP. Those three sales generated a combined $1.183 billion in underwriting and other fees, according to Thomson Reuters data - roughly 2.5 percent of the amount raised.

Just as they do when tapping capital markets under normal conditions, each institution served as lead manager and underwriter for its own offering. "But when bonus time comes, and when employees tally up the work they did for the year, they will be compensated for their work on these offerings as if they had worked for an outside client," the Times says.

Other banks also participated in the selling syndicates. For instance, Morgan Stanley, BNP Paribas and ING distributed portions of Citi's $17 billion offering last week.

The big offerings are also affecting Dealogic's underwriting league table - but not Thomson Reuters'. The former information vendor includes deals banks manage for themselves in its stock-offering totals, while the latter does not, the Times says. As a result, Citi - long an "also-ran" in the stock rankings - jumped to fourth place in Dealogic's list, ahead of underwriting powerhouse Morgan Stanley.