Posts

Obama administration refuses TARP repayment

I could have written this script last fall – every page of it – if I new that President Obama was going to win the election. There was always going to be strings attached to Troubled Asset Relief Program (TARP ) money that flowed into the private banking system, but it was assumed that when the banks had the funds to “pay back” the government, they would do just that.

It’s looking more like the Obama administration likes the control it’s weilding, and may refuse to take some of the funds back.

Last week, a few small banks did return funds to the Treasury. My guess is that it’s not because they wouldn’t like to have a few million extra available to do business…

“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.

In February, Bank of America made a $402 million payment to the government to start paying back the $45 billion it received late last year and earlier this year. In March, Chief Executive Ken Lewis publicly noted BoA would pay the money back by the end of the year. Then, Lewis met with Obama.

Now, Lewis says that they will pay back the money eventually.

From Stuart Varney’s opinion piece in the Wall Street Journal yesterday

Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

Could this bank be Bank of America?

I’m not 100 percent certain that Obama is a socialist, but his actions – including government providing car warranties to GM customers – certainly seem to be socialist.

Backlash!

John Hinderaker has spotted a trend and we think it’s a long time coming. Financial firms and businesses, even one’s in trouble, but especially those that are not, are quickly discovering that government funds come with strings, and the rules can change (and often do) in the middle of the game. 

Bank of America CEO Ken Lewis now says that taking $20 billion from the federal government to support BoA’s acquisition of Merrill Lynch was a “tactical mistake.” Lewis says he expects BoA to repay the $45 billion it owes the government over the next two to three years.

Uhh, yeah … and one of my former brothers on the street says they are not the only one … and reminded me of this … when JP Morgan cut its dividend last week by 87%.

The savings from cutting the dividend will put the bank in a position to pay back more quickly the $25 billion it took from the government last fall under the Troubled Asset Relief Program. J.P. Morgan has said it was encouraged to take the money and didn’t need it.

They realize what you soon will if you agree to mortgage cash, or federal health care … nothing comes for free and everything they do has strings and rules can change in the middle of the game.

Reason 67: Government should not bail out corporations

When you are a large corporation that is having difficulty, one of the things you must considered is marketing. There is a time you need to spend money to make money.

You could cut your entire marketing budget, cancel all of the advertising, lay off the graphics staff that make the pretty brochures, and hope. Then pray. But that tactic could easily lead potential customers to think you are out of business.

When the government finances the rebirth of a company on the verge of bankruptcy with cash grants, favorable loan terms or guaranteed financing, corporations soon deal with the wrath of the people. The people who have funded your rebirth expect you not to mess up.

Perception is reality for companies like Citigroup, who kept plans in place to buy a new jet (since canceled I think) and Bank of America, who sponsored a large event at this year’s Super Bowl in Tampa. Brian Ross from ABC News investigates.

The event – known as the NFL Experience – was 850,000 square feet of sports games and interactive entertainment attractions for football fans and was blanketed in Bank of America logos and marketing calls to sign up for football-themed banking products.

The bank staunchly defended its sponsorship, saying it was a “business proposition” and part of its “growth strategy.”

Critics blasted the spending as a serious abuse of taxpayer money.

Here is the problem. What if buying the jet was the right thing to do? What if selling the two smaller jets and buying the new jet reduced costs for Citigroup by $5 million per year?

What if sponsoring the NFL Experience (at an undetermined cost) brought Bank of America more business and, in turn, BOA got a solid return on the investment? Good for the company. Good for the shareholders. Good for the government since they would get paid back quicker.

Hence we discover another problem with government funded bailouts. The perception of the people who see this type of “frivolous” spending could ensure the companies don’t move forward with decisions that could be the right move.