More TARP anger and confusion is surfacing every day. The blow back with respect to it looking nothing like what originally was sold to American tax payers is getting heavy. Even the name TARP (Troubled Asset Relief Program) makes no sense any longer, unless the banks themselves are the troubled assets to which the acronym refers.
The TARP bailout went from a 2 1/2 page $700 billion blank check for Paulson to a 400+ page porked-up money grab like none other in history – it’s still a blank check but now for the banks as well. I was told one bank is putting the funds to use buying energy-related Bonds. Many, including myself, knew that while spending vast amounts of money strategically was needed, this was a rushed deal with so few specifics it can’t be trusted.
Within two weeks, the program has become vastly different from what the politicians begged American’s every day on TV to support and what Paulson and Bernanke stood up under oath and testified to. That is, ‘our financial system is melting down and there is a very strong chance we will go into a depression unless we can buy troubled assets from financial institutions balance sheets, hold them for longer than the institutions can and magically make money in the future. If we give this money to the Treasury, the banks will begin to lend to businesses and consumers once again and the system will be saved’.
During vote week, the media did all they could to get this bill passed. Every news station in the nation was showing small business owners saying that they are having to close shop because they could not get credit. It was sad but the sad reality is Missy’s Upscale Cat Grooming Boutique would have likely failed anyway due to terrible economic conditions. The same goes for all of those auto dealers showed shutting doors on local news channels. Perhaps having credit locked saved these businesses a ton of money by hastening the inevitable.
All of a sudden now, everyone is standing up saying ‘WTF happened here?. I still can’t get credit and most of the first round $350 billion is already earmarked as investments in banks’.
Just a few weeks into this as the first decisions are being made, their first order of business was to chose nine banks to which to hand $125 billion in below market rate capital. Heck, freaky Uncle Warren got a vastly better deal that the US Government. The second order of business will be giving $250 billion to other banks, so reported later last week.
Other media reports talk about bailing out insurance companies, auto makers and gigantic private equity/hedge funds with Cerberus already asking for money.
“GMAC LLC, the big lender co-owned by General Motors Corp. and investor group Cerberus Capital Management LP, is seeking to become a bank holding company, a move that would allow it to gain access to a piece of the government’s $700 billion financial rescue plan, according to people familiar with the talks.” Source: Wall St Journal
As many feared, the banks look to be using the money for what I would use the money for if I were CEO of a bank – to acquire distressed banks for pennies on the dollar for their foot print and deposits.
I would also use the money to batten down the hatches so I am around several years out when the skies clear. The last thing a responsible CEO would do is start aggressively lending during the largest asset revaluation and de-leveraging period in history. Who cares about returns and share price at this point, its all about survival.
By JOE NOCERA
Christmas came early at JPMorgan Chase.
The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks.
Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.
In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.
(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”
Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.
Even Dodd, one of the largest proponent of this bill is trying to save his skin.
“If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.”
This week Cuomo got into the act over banks using tax payer money for bonuses.
New York Attorney General Andrew Cuomo sent a letter to Citigroup (NYSE: C), JP Morgan (NYSE: JPM), Wells Fargo (NYSE: WFC) and others banks that received money from the TARP, asking for information on bonuses.
In the letter Cuomo said, “Obviously, we will have grave concerns if your expected bonus pool has increased in any way as a results of your receipt or expected receipt of taxpayer funds from TARP.”
Other banks that received money from the TARP include, Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC)/Merrill Lynch (NYSE: MER), State Street (NYSE: STT), Bank of New York (NYSE: BK).
Reuters reports that even the banks are confused as to standard protocol over TARP participation.
-WASHINGTON, Oct 30 (Reuters) – U.S. banks on Thursday reiterated pleas to the Treasury Department to clarify the purpose of its $250 billion capital infusion program.
-The American Bankers Association, which represents banks of all sizes, also urged the Treasury Department to extend the deadline to apply for the capital beyond Nov. 14.
-“Bankers across the country are under a very tight time frame, with roughly two weeks left to make the very important decision of whether to participate in the (program),” ABA Chief Executive Edward Yingling said in a letter addressed to Treasury Secretary Henry Paulson.
-Wells Fargo said on Thursday in a filing that it also had issued Treasury a warrant to purchase 110.26 million shares of common stock with an exercise price of $34.01.
-ABA’s letter said there is great anxiety about participating in the program and said that the Treasury has not made clear that it is designed to provide cash to healthy banks.
-The letter highlighted a list of issues that have yet to be ironed out. Those include proposals to restrict compensation, prohibit dividends, and explicit lending requirements.
-“It is completely unfair to ask thousands of banks across the country — and they are being explicitly asked by their regulators – to participate in a program when the impact of the program on those banks is unknown,” said Yingling.
-ABA sent a similar letter about two weeks ago asking the Treasury and banking regulators to quickly clarify the purpose of the program.
Senator Schumer is getting into the game because he feels they slipped a fast one by them in the bill that could potentially cost tax payers another $140 billion on top of the $700 billion approved.
By Jonathan Stempel
NEW YORK, Oct 30 (Reuters) – A new tax ruling that could make it easier for bank mergers such as Wells Fargo & Co’s (WFC.N: Quote, Profile, Research, Stock Buzz) planned purchase of Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) to take place was criticized Thursday by Sen. Charles Schumer, who said it may prove too expensive for taxpayers.
In a letter to U.S. Treasury Secretary Henry Paulson and Internal Revenue Service Commissioner Doug Shulman, Schumer said that by making acquired banks’ loan losses more valuable for tax deduction purposes, the IRS ruling could cost taxpayers $140 billion, citing an estimate from the law firm Jones Day.
Schumer, a New York Democrat who sits on the Senate Banking Committee, said the ruling could save Wells Fargo alone $19.4 billion of taxes on its purchase of Wachovia, more than the $15.1 billion in stock that San Francisco-based Wells Fargo agreed to pay.
“I am concerned that the notice, which was never debated by Congress, could end up costing taxpayers tens of billions of more dollars on top of the hundreds of billions of dollars already approved by Congress in the financial rescue plan,” Schumer wrote, referring to this month’s $700 billion financial industry bailout. Click HERE for full story.
In a nutshell, it is obvious that we have not heard the end to this. It may just some down to some heavy regulation and tighter protocol on the bank’s use of TARP funds, higher cost to the banks, greater tax payer ownership etc. This is a very sensitive subject and when the politicians feel enough heat, they will act. But painting the TARP as the largest fleecing in American history will not bode well for confidence. -Best, Mr Mortgage