Who's Next to Payback TARP after BofA?

Following news last night that Bank of America (NYSE: BAC) will pay back its $45 billion in TARP, focus has shifted to which banks will pay back the government next.

In a note today, analysts at Deutsche Bank said that Wells Fargo (NYSE: WFC), PNC (NYSE: PNC) are the next banks most likely to raise common to repay TARP. The firm also said these announcement may also imply that a sale of the government stake in Citi (NYSE: C) is closer to happening - which they would view as a positive for Citi shares. The firm said the BAC news also supports their view that banks will have to raise additional capital to repay TARP and the net impact for most banks will be about neutral to normalized EPS, not accretive as some had hoped.

Analysts at Goldman Sachs also commented on Wells Fargo, calling it the "natural read across" given it holds $25B of TARP and has a low 5.2% Tier 1 common. On this the firm said "other banks that are consistently profitable were held to lower standards e.g. US Bancorp repaid with 6.6% Tier 1 common. Moreover, Wells generates 20bp of Tier 1 common per quarter via earnings – thus they could earn their way out of part of the capital need if they are given the benefit of time."

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