On Wednesday, Regions Financial Corp. (RF - Analyst Report) completed the buyback of warrants by paying $45 million to the U.S. Treasury Department. These warrants were issued to the U.S. Department of the Treasury as part of the company’s participation in the Troubled Asset Relief Program (TARP).
As a holder of warrants, the Treasury had the right to buy 48.3 million shares of Regions’ common stock for $10.88 per share. Regions opted for the repurchase to limit shareholders’ dilution in future.
Last month, Regions also repurchased $3.5 billion of its Series A Preferred Stock, which were issued to the U.S. Department of the Treasury under TARP. Regions’ repayment was financed by the proceeds from the recent $900 million common stock offering, and the sum of $1.2 billion received on closing the sale of Morgan Keegan & Company Inc. to Raymond James Financial Inc. (RJF - Analyst Report) . Other funds from available resources were also used for the repurchase.
Over the last three years, total dividends paid by the company on the TARP preferred stock sums up to $593 million. However, on an annual basis, the repurchase of stock eliminates the need of paying dividends worth $175 million on these securities.
After settling the TARP obligation, Regions looks forward to deploying its capital through a dividend hike and share repurchase, which will further enhance investors’ confidence on the stock.
A total of $245 billion was handed out to the banks as bailout money. Moreover, $263 billion has been returned in the form of repayments, dividends, interest and other income. Still, many of the regional banks have not repaid the entire bailout money.
To date, taxpayers have recovered approximately 81% of the total $414 billion distributed by government across all TARP programs, which amounted to $337 billion.
While the larger Wall Street banks had repaid the TARP money earlier in 2009 and 2010, many regional banks stepped back due to continued high levels of losses in their loan portfolios. In addition to that, the economy was under tremendous stress. However, the recent repayment of the TARP loan by a large number of these banks can be viewed as a sign of economic recovery.
Regions currently retain a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain a long-term Neutral recommendation on the stock.