Banks Whining Over TARP Repayment Terms

[ProSense]

Banks Whining Over TARP Repayment Terms

I have zero sympathy for the kvetching over the banks' complaints over the supposedly onerous terms for repayment of TARP funds.

Let's review some of the claims:

1. "It was forced on us." Um, the only time that was arguably true was when Hank Paulson got nine banks together and made a great show of making them take TARP funds, in essence to disguise the fact that some desperately needed the money (Citi in particular) while other just badly needed it. And were smaller banks forced? Please.
   
   
2. "This terms are really unfair!" Despite Paulson's show of coercion was in fact a great deal. Lest we all forget, the TARP funds were at terms more favorable than the best of the bunch, Goldman, had just extracted from Warren Buffet. Similarly, the smaller banks were delighted to take the money. From the New York Times in December:
   
   

   Most of the banks that received the money are far smaller than behemoths like Citigroup or Bank of America. A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.

Nothing beats revisionist history.

So what is really causing the consternation? It is that the banks suddenly want to give the money back now to escape the executive comp provisions. But the TARP funds had warrants attached, and Uncle Sam wants to exercise the warrants as part of any repayment.

Think of it as a fund exit fee. You get into a fund that otherwise looks phenomenal but has an exit fee. Suddenly you have an emergency and you need the dough, and instead of amortizing that exit fee over the, say, minimum 5 years you expected to be in the fund, you are amortizing it over two months. What looked like no big deal suddenly is a big deal.

But what is particularly ugly is the banks trying to welsh on the terms with rubbish arguments like the ones above. If you have been on the receiving end of a conversation with a particularly unpleasant bank customer service rep regarding some gotcha fees, I'm sure you relish the spectacle of the banks hoist on their own petard.

Funny how contracts are sacred until they are the ones you want to get out of.

more

[dkf]

1. So the nine banks have a gripe then right?

Personally, I think any bank should be able to pay back the TARP if they want to. It isn't right to force someone to take something, refuse to let them pay it back, and then use that as a basis to tell them what to do.

[ProSense]

2. Yeah, better to just

nationalize them.

I have no sympathy for these bloodsuckers.

[ChimpersMcSmirkers]

4. I tend to agree with you, but at this point I don't fully trust management

to make a decision that's best for the company or the country. I believe one of the chief reasons they want to get out from under the govt's thumb right now is so that they are free to go bonkers with their massive bonuses, etc. I suspect that there is good reason why the Treasury is keeping them on the leash.

[dkf]

6. Treasury is keeping them on the leash to disguise weak banks.

Giving the money to all the big banks was an effort to keep the public from knowing which banks are in need of Government help. This is ironic as Obama campaigned for transparency, yet his administration deliberately obscures the health of these banks from the public.

If any of these banks goes down and people lose money because the Government aided these institutions in deliberately keeping vulnerabilities unknown, it will be the Administration's fault.

[ProSense]

8. That's no excuse

Everyone know which banks are having problems. Besides, the results of the stress test aren't scheduled to be released until the end of April. No one has any idea what the results will reveal.

[dkf]

9. Actually, I'd say there is 1 bank that is pretty much screwed and

1 bank is iffy.

For the other banks, I'm not so sure.

[PBS Poll-435]

15. Yeah. Stress tests, my ass

We have known for months that Citi is going to be broken up into pieces, BoA is going to get slapped around but remain intact, and the others will continue as is.

[ProSense]

18. Really?

You've known? What's going to happen to AIG?

[dkf]

19. AIG isn't a bank.

[ProSense]

21. Really? n/t

[PBS Poll-435]

20. Um. AIG is not a bank. AIG is an insurance company that pays claims on assets that have gone south

Car accidents.

Fires.

Derivatives.

[ProSense]

22. Come on, that wasn't the question.

I asked since you seem to be in the know: What's going to happen to AIG?

I didn't ask what's going to happen to AIG, the bank?

[PBS Poll-435]

23. In the short term? An (almost) wholely owned US Gov't entity.

When they finally have the BS off of their books? Some kind of IPO thingy.

[dkf]

24. I'd call it a financial black hole myself.

But I don't get the relevance. Weird.

[PBS Poll-435]

25. Maybe the OP bounced a check at AIG?

:rofl:

[ProSense]

26. Here's what's weird

You: Treasury is keeping them on the leash to disguise weak banks.

You again: Actually, I'd say there is 1 bank that is pretty much screwed and 1 bank is iffy.

Other poster in agreement(?): We have known for months that Citi is going to be broken up into pieces, BoA is going to get slapped around but remain intact, and the others will continue as is.


So the Treasury is disguising the weak banks, but are going to break up Citi (presumably the "screwed" bank) and slap around BoA (the "iffy" bank)?

So what exactly is the Treasury supposedly hiding?




Edited to add question mark.

[PBS Poll-435]

27. I would say everything is relatively transparent regarding Treasury's actions

nt

[dkf]

29. Ooh, I'd say you are wrong there. I thought we still didn't have information

on exactly who funds were going to? Or the results of the stress tests?

Then again, I've been pretty out of it for the last two weeks. Maybe things have changed?

[PBS Poll-435]

30. My point was that it is transparent that they are hiding/protecting

When in fact we already know.

[dkf]

31. Oh got it. I agree 100%

[dkf]

28. That is what is frustrating.

We pretty much know what the results will be but Treasury is making it such a big secret.

Get it over with already. Sheesh.

[rucky]

3. Maybe we should take up a collection to help out the banks.

oh yeah, we already did.

[rock]

5. What're you in for Lefty?

Not taking money from the government. Now, give me some lip and I'll do the same to you!

[ClarkUSA]

7. Whining or not, four banks have already paid back their “bailout” loans to the government...

...and and more are hurrying to do so "as the industry tries to escape what it considers the onerous conditions attached to the government’s money." That some seem to think “bailout” means a giveaway is consequence of the inaccuracy of the word.

Signature Bank of New York said on Tuesday that it had repaid $120 million to the Treasury Department. Old National Bancorp of Indiana returned $100 million, Iberiabank of Louisiana paid back $90 million, and Bank of Marin Bancorp of Novato, Calif., repaid $28 million. All of the banks paid 5 percent interest on the money they had received.

The four banks were the first to announce that they had returned money from the Troubled Asset Relief Fund, or TARP. The Treasury Department has set aside $250 billion to prop up the banking system, with about half of that money given to the eight biggest banks. About 500 small banks have received $73.7 billion... New restrictions on executive compensation and dividend payouts made such aid less palatable to bank managers.

“We don’t want to be touched by the stigma attached to firms that had taken money,” said Scott A. Shay, the chairman of Signature Bank. He said he also worried that the conditions on the aid could hurt the way he paid bankers and sales representatives.

Iberiabank executives said that tougher rules, including limiting dividends, made taking the aid untenable. “It really changed significantly from how it started,” said John R. Davis, a senior vice president at the bank. “All those changes made it very difficult for a bank like us to participate in the program.”

Originally, banks that accepted TARP money were required to raise private capital before they could repay the loan. But after Congress passed its economic stimulus bill in mid-February, the repayment policy was loosened as strict new compensation rules were put in place.

[ProSense]

11. Yeah, the small banks are repaying, and these are not the problem.

Still, failures of some small banks are bound to continue.

Bank Failure 22: Cape Fear Bank, Wilmington, NC

Bank Failure 23: New Frontier Bank, Greeley, CO

I suspect the larger institutions are whining because they want it both ways: bailout and the freedom to do whatever they want.

The bailout wasn't made on the repayment terms "whenever you feel like repaying." Some of these banks are still at risk. When they agreed to the bailout, they knew the conditions. They can't simply decide now that they don't care about being at risk simply because they don't want to adhere to caps on executive compensation.

[ClarkUSA]

14. The banks repaid $340M plus 5% interest; many more will do so because they hate the strings attached

As a taxpayer, I'm pleased.

Some small banks will fail. Most will not. Of course, some will "whine" but that's expected what with the new restrictions
President Obama has created.

[PBS Poll-435]

10. What a weird source

Funny, the banks that are doing well can't wait until they are allowed to payback the toxic TCPP $.

[ProSense]

12. Weird source? n/t

[PBS Poll-435]

13. I am not familiar with NakedCapitalism

Slow news day, I guess.

[ProSense]

16. It's a well-established financial blog. That's besides the point, the

blog post is about a piece in today's NYT, which is linked to in the piece (follow the link).

[PBS Poll-435]

17. Read it. Thanks!

:-)

[Phx_Dem]

32. This is more opinion than fact.

OPINION, NOT FACT: ... in essence to disguise the fact that some desperately needed the money (Citi in particular) while other just badly needed it. And were smaller banks forced? Please.

JUST PLAIN STUPID: "This terms are really unfair!" Despite Paulson's show of coercion was in fact a great deal. Lest we all forget, the TARP funds were at terms more favorable than the best of the bunch, Goldman, had just extracted from Warren Buffet. Similarly, the smaller banks were delighted to take the money. From the New York Times in December:

If I go to a bank or credit union to get a loan and I don't like the terms, I can walk out without signing anything. The 9 banks that were forced to take the initial TARP money did not get a choice in the matter, and were not allowed to negotiate the terms. It was "shut up and sign it," but now they don't have a right to be unhappy about the terms? What about all the low-income people who were snookered into subprime loans by shaddy mortgage companies that didn't reveal the true terms of the agreemnts? If you believe the above statement is true, you should feel the same about way these people "whining" about their loans. The difference is, they were not forced to sign anything.

The financial industry is definitely to blame for this crisis, but not more than Congress. Congress is the real culprit. They took hundreds of millions of dollars from the financial industry lobbysts and then turned around the deregulated everything in sight. Banks don't have the authority to write or repeal laws, but Congress does. They failed the country with their insatiable greed, as did the financial industry.

Capitalism isn't the problem; deregulation is. Capitalism needs to be strongly regulated, but Congress, along with a couple of former Presidents, decided that wasn't necessary.

[ProSense]

33. The notion that these banks were forced is crap

They were no more forced than Ford was to take the auto bailout. Forced in the sense that they had to agree to the terms yes:

Goldman Sachs (GS, Fortune 500), Bank of New York/Mellon (BK, Fortune 500), Wells Fargo (WFC, Fortune 500), JP Morgan Chase (JPM, Fortune 500) and Bank of America (BAC, Fortune 500) - all 'mega-banks' that the government forced to take bailout money - say they want to return taxpayer funds "as soon as practical."

But, they're well aware no one will be permitted to return funds before completion of regulatory "stress-tests" of the major banks to determine how they would withstand a severe recession.

"We want to return the TARP money as soon as possible. We feel more bullish about economic prospects broadly, but we recognize we can't repay the money without the approval of the regulators," said Goldman Sachs spokesman Lucas Van Praag.

link

Earlier this month, Wells Fargo slashed its quarterly dividend 85 percent, to 5 cents a share, saving $5 billion a year. In the fourth quarter, the bank posted its first loss since 2001, and it completed its acquisition of its troubled larger rival Wachovia at the end of the year.

Even with the $25 billion of TARP capital, Wells Fargo has less capital relative to its size than some banking analysts prefer.

Still, Mr. Kovacevich said that had the bank not been forced to take TARP money last October, “we would have been able to raise private capital at that time, and with that private capital, given what is going on today, it is very unlikely that we would have had to reduce the dividend.”

Wells Fargo and 18 other large banks are being subjected to stress tests to determine which can withstand a particularly severe recession. Those that cannot will need to raise more capital. Results are due by the end of April.

link

They didn't have to accept the money.

The Bank Bailout: Were Bankers Victims of Predatory Lending by the Government?

Those poor bankers are now claiming that they got predatory loans from the government. I'm not kidding, that is what the NYT reports, although it didn't quite put the issue in these terms, presumably to spare the bankers from ridicule.

The NYT article tells readers that some of the banks are now unhappy with the terms of the TARP and want to return the money they borrowed. However, this early repayment would effectively carry substantial penalties (sort of like the penalties for early payment on adjustable rate mortgages with teaser rates).

This raises tough questions. Should borrowers be held responsible for understanding the contracts they sign. Admittedly, these are bankers, so perhaps more leniency needs to be extended, but what about the sanctity of contract. Larry Summers, the head of President Obama's National Economic Council, gave a great lecture on the importance of the sanctity of contract when the topic was the bonuses of AIG executives. Perhaps President Obama can get Mr. Summers to give the same lecture to the bankers who are now complaining about their repayment penalties.

Hopefully future news stories will bring these issues into the discussion.

[Phx_Dem]

34. The only link you posted that supports your opinion

is the last one from American Prospect, but this guy is just stating his opinion. He even acknowledges that NYT (in addition to USA Today and other papers) reported that the banks were forced to take the money. They further reported that Wells Fargo's Chairman Dick Kovacevich "strongly objected."

Keep in mind that "forced" does not mean that Paulsen, literally, put a loaded gun to their head. He told them that "their country needs them to do this," and "it would be unpatriot of them to refuse," and "if they don't sign the contract, the Fed will not be there for them in the future." The last one sounds like a veiled threat to me. I'd call that force and, at the very least, severe duress. That's not how contracts are supposed to be signed.

It doesn't really matter if some of these companies may have needed government assistance down the road -- that's for psychics -- many of them didn't need it at the time. And, having "less capital relative to it's size" doesn't mean much considering that many U.S. companies who are not banks, are in dire straights right now because of the economy.

I don't think most of these companies would be complaining right now, if the Fed didn't keep changing the rules on them. They agreed to take the initial TARP funds to help the economy by helping to unthaw credit markets. And it's worked. We're not there yet, but there is a huge difference between today's credit market and what it was back in October/November.

I strongly support restrictions on the companies that ASKED for government assistance. If you want government help, you have to play by government rules. But forcing a company to take government funds and then dictating how they run their company is bullshit.

[ProSense]

36. Right, because the other two are the opinions of the bankers,

who also imply that they knew what they were getting into.

The problem with this notion that the government is forcing them to do anything is that they are the ones who fucked up, royally. There actions almost resulted in the complete devastation of the economy. They must accept, without whining, that they are going to be forced to do something as a result of accepting bailout money. Tough shit for them.

Some peopele wanted, and still do want, the government to seize them, fire management and re-organize them.

The whining is what's bullshit.

[Sgent]

37. Whitney bank in New Orleans

was told to take the bailout or lose FDIC insurance for their deposits. I would consider ruining your business if we refuse your capital to be forced.

[girl gone mad]

40. I'm sure you have proof..

for that claim..

[BlooInBloo]

35. (shrug) Then don't take the money, and go bankrupt, fuckers.

[IdaBriggs]

38. Start calling them four times a day (like they do us when late) --

the complaints should get even more interesting!!!

[Control-Z]

39. Yeah, well then I can gripe

about the repayment terms of my mortgage. When is the last time you were able to wiggle out of a prepayment penalty? That is assuming you were ever rich enough to pay off a loan prematurely. It does happen with refi's all the time, though, even if you may not be aware. The penalty is added to your new loan balance, and on top of that you are charged a fee by the guy who writes the loan, for being so kind as to include that extra debt in the new loan for you. Now don't you feel lucky to have gotten all that professional financial help?

If everyone with a mortgage, or any other loan with these POS institutions, formally complains about the repayment terms of their loans, perhaps they'll get a clue. For added emphasis, send a cc of your complaints to the head honcho, and to the media. If Obama's office gets enough of these complaints, he might be reminded of whose terms really are reasonable (the bank's), and whose are not (the consumer's).

I'm afraid they all just think the public is too stupid to understand what is going on. Obama's a politician, and will, if he can without scrutiny, get away with answering to these A-hole's terms, while leaving the rest of us to pay the extortionists' inflated fees and penalties.

If I could set up an online letter, for everyone to just sign and send, with this general sentiment, I would. I know there is a site that accommodates this kind of petition/protest/mass complaint, but I don't remember who, or how.

[vssmith]

41. Now they know what credit card users feel like