Wednesday, March 11, 2009

The Bank Crisis that Never Was

Banks: Take my TARP. Please!
A growing number of banks are already aiming to return taxpayer funds. Some analysts wonder how easy it will be to give the money back.


A growing number of banks are looking to return government money received under the Treasury's TARP program after Congress removed several repayment restrictions.

NEW YORK ( -- Taxpayers hate the bank bailout. Lawmakers too. And now it looks like some of the bailed out banks themselves are starting to get fed up with it as well.

Just weeks after Congress removed a key hurdle that prevented banks from paying back funds from the Troubled Asset Relief Program, or TARP, some banks are already queuing up with checks in hand.

So far, three banks have formally declared their intentions to pay back the government. Last month, Louisiana-based IberiaBank Corp. (IBKC) said it would return $90.6 million while TCF Financial (TCB), a bank headquartered just outside of Minneapolis announced last week it was returning $361.2 million.

On Tuesday, New York City-based Signature Bank (SBNY) became the latest, announcing at a conference it had filed notice with the Treasury Department to pay back $120 million in TARP funds.

This list doesn't include the dozens of institutions that were approved for government aid, but subsequently decided to turn down the money. New Jersey-based lender Sussex Bancorp (SBBX) added itself to that group after it withdrew from the program last week.

But even more banks are poised to return TARP money, including some of the nation's largest.

Asset manager Northern Trust (NTRS, Fortune 500) told members of Congress last month that it wanted to repay the $1.57 billion in government funds "as quickly as prudently possible" after the Chicago-based firm came under heavy scrutiny for its sponsorship of a recent golf tournament in California.

And other big banks, including PNC (PNC, Fortune 500) and US Bancorp (USB, Fortune 500), as well as JPMorgan Chase (JPM, Fortune 500) and Goldman Sachs (GS, Fortune 500), have been stating they hope to return the funds as quickly as possible. A repayment by those four alone would return an estimated $49.2 billion to government coffers.

Brian Klock, an analyst with Keefe, Bruyette & Woods in San Francisco, noted that the list may not end there. A handful of regional banks that he tracks could very well repay the government's stake with existing capital in the near-term, including Comerica (CMA), the Beverly Hills-based City National (CYN) and Trustmark Corp. (TRMK)

One common thread between these three is that each bank has a healthy level of tangible common equity, a measure of a bank's ability to absorb future losses that is increasingly viewed by analysts as one of the best indicators of a bank's health.

Why there is a rush to pay back TARP
Some institutions have argued that it is too costly to keep government capital on their books at a time when banks in general have been resistant to make new loans as the economy sours and more Americans lose their jobs.

Other banks have suggested that the recently passed stimulus package, which included a measure aimed at reining in bonuses for senior executives and top earners at banks that got TARP funds, would harm their firms even further.

0:00 /02:36Where Lohan meets TARP
"We believe participation in TARP has created a competitive disadvantage for TCF and it is in the best interest of our shareholders to redeem these shares," said TCF Chairman and CEO William Cooper in a statement when the company announced its plans last week.

Many bankers are also troubled by the inconsistency in the government's rescue efforts so far. Others worry that regulators or lawmakers could change the accompanying terms of the government's capital purchase program as they see fit in the future.

For example, some fear that banks which have received TARP funds could be pushed to make certain types of loans or fulfill some sort of loan quota, following the ongoing public outcry that banks are not lending.

"The biggest issue is just the fact that the rules can change," said Alan Avery, a partner in the financial services group at the law firm Arnold & Porter.

Many hurdles remain
Many have argued that the TARP program has been troubled from the start. When it was first pitched to Congress, it was described as a program geared towards buying troubled assets from lenders to help thaw frozen credit markets.

But when pricing issues derailed those efforts, government officials moved instead to inject capital directly into banks to bring some stability back to the financial system and prevent banks from tightening credit any further.

One key sticking point, however, was that the government would maintain its stake in an institution until 2012 unless a company could swap it out with private capital.

That required a bank to go out and raise an equivalent amount of new equity capital to replace the government's stake, as well as securing regulatory approval.

Congress struck down those requirements in the recent stimulus package, allowing banks to pay back TARP funds after giving just a minimum of 30 days notice to the government.

But as banks start lining up to return taxpayer funds, one unanswered question is just how quickly regulators will move to sign off on repayments.

Federal agencies that oversee the nation's banking industry, including the FDIC and Office of the Comptroller of the Currency, are already in the midst of "stress testing" the nation's 19 largest banks to determine whether additional bailout funds will be required, point out experts.

Having to commit more capital to a bank after it repaid TARP funds would not reflect well on regulators.

"My sense is that a lot of these institutions are only surviving because they have the money injected from the government," said Viral Acharya, a professor of finance at New York University's Stern School of Business.

At the same time, questions remain about just how quickly Treasury will be able to unwind its holdings in those banks, given that it involves a combination of both preferred shares and warrants. That, combined with a widely reported staffing shortage at the agency, could also pose a hurdle.

Yet another unanswered question is what will Treasury actually do with the refunded money.

Calls to the Treasury Department on the matter were not returned. But if even a fraction of the nearly $200 billion that the government has injected into banks since last fall is used to plug holes in the nation's widening budget deficit for example, that could be helpful.

First Published: March 11, 2009: 10:54 AM ET


Tuesday, January 27, 2009

Citi's New Plane

Can you believe this? The bank is still being robbed! $45 million for a new airplane? Don't you think that could better spent supporting the major airlines by booking a few commercial flights? I think the management at Citi and the guy who bought a $15,000 garbage can for his new office at Bank of America ought to be run out of town. Remember the plane and garbage can next time you get soaked for overdraft fees by uncaring banks. I have one question, WHO IS THE IDIOT AT BANK OF AMERICA THAT APPROVED THAT REQUEST FOR THE GARBAGE CAN? Again stupidity reigns in corporate America and we the general public are paying the price.

Wednesday, January 21, 2009

The Great Bank Robberies of the Century

Being in the bainking industry for as long as I have, the banks today have very sophisticated procedures and alarm systems to prevent thefts. Well they failed miserably. The banks got ROBBED by the people that were supposed to be maintaining the security systems. Its amazing to me that the former CEO's of Wachovia, Citibank, Merril Lynch, Washington Mutual, Countrywide and every other bank out there that failed are not SITTING IN A JAIL CELL waiting trial for robbing the bank. The question that is most unanswered today is WHERE DID THE MONEY GO?, and will these guys be prohibited from ever sitting on the board of a bank again? Well time will tell.

Tuesday, December 23, 2008

Loan Modifications- They aren't working!

NEW YORK ( -- That lenders are ramping up their attempts to help troubled home borrowers is the good news.

Now for the bad: Most of the mortgage fixes being deployed are destined to fail.

Hope Now, the coalition put together to fight foreclosures, boasts that it has helped 3 million families stay in their homes since the housing crisis began in July 2007.

But a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again. The report covered 60% of the outstanding primary mortgages.

Meanwhile, foreclosures remain on the rise: More than a million homes have been repossessed since the start of the meltdown.

Michael Van Zalingen has witnessed the problem first hand as director of home ownership services for Neighborhood Housing Services of Chicago, a non-profit group that provides foreclosure-prevention counseling.

Lenders and servicers take two approaches to working out mortgage problems: repayment plans and mortgage modifications. Repayment plans allow borrowers some time to make up missed payments. Modifications actually rewrite the terms of loans by freezing or lowering interest rates, extending the life of the loan, or reducing the amount owed.

Mortgage modifications are meant to be more effective. The problem, Van Zalingen said, is that they too often fail to reduce a borrower's monthly house payment.

The lenders often don't change the interest rates but merely freeze them at a high, unaffordable level, and then add missed payments into the balance, which increases it, according to Van Zalingen.

He said that one-third of his 121 clients granted modifications between January 2007 and June 2008 wound up with housing payments equal to a whopping 50% or more of their gross incomes.

"The modifications did not put any breathing room into their budgets at all," he said.

Before the housing bubble began, underwriters generally wouldn't approve mortgages that required monthly payments of more than 28% of a borrower's gross income.

Modifications that include interest rate reductions that result in lower payments perform much better. A recent Credit Suisse study reported redefault rates of only 15% for this kind of modification.

Chris and Cherita Barnes: Help...but not really
Chris and Cherita Barnes got a mortgage modification from their servicer, Ocwen Financial Corp., in March 2008.

But they're already behind again. The loan workout froze the 8.75% interest rate on their adjustable rate loan, but added their missed payments, interest and late fees back into the mortgage balance, raising it to $354,000 from $329,000.

The Barnes' new monthly bill came to $3,167, up from $2,890. That was better than it would have been had their interest rate continued to reset higher but it still pushed their mortgage payments, including taxes and insurance, to about 53% of their income.

The couple, who both work and have three kids, are now trying to figure out what to do next.

The Barnes' predicament is not unusual, according to James Jones, a foreclosure-prevention counselor with the East Side Organizing Project in Cleveland.

"I see quite a few of these [unmanageable modifications]," said Jones. "When we get offered them by lenders, we challenge them."

But many borrowers are terrified of losing their homes and, in that vulnerable state, will accept whatever lenders offer them -- especially if they don't have an experienced advocate helping them.

Van Zalingen said his counselors try to negotiate better workouts, but the modification offers are often presented on a take-it-or-leave-it basis, and many desperate homeowners take them.

Geoffrey Bagley: Unrealistic expectations
Geoffrey Bagley is another borrower who received an unsustainable mortgage modification. After the monthly payment on his adjustable rate mortgage jumped to $2,400 from $1,300, he got a workout with the help of the National Community Reinvestment Coalition, a community advocacy group that offers mortgage-prevention counseling.

That workout may have pushed his payment down to $2,000, but it still represented more than 50% of the gross income he and his wife earn.

"That's because the lender based the modification on the Bagley's income with overtime," said Jesse Van Tol, a spokesman for the coalition. "But in a recession, that overtime often disappears."

Lately, the couple has lost hours at work and they started missing payments. They're trying to apply for another, more affordable modification, but it looks like they'll probably lose their Maryland home.

Modifications that don't involve some kind of principal reduction or somehow lower payments substantially "just don't work very well," said Mark Zandi, chief economist for Moody's But, he added, many lenders have recently gotten much more aggressive when it comes to loan modifications.

The attitude among lenders seems to be evolving. In just the past couple of months, JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) announced more comprehensive foreclosure-prevention programs.

According to Paul Koches, an executive vice president at Ocwen, it makes no sense to modify a loan if it results in an unaffordable payment. The mortgage will simply default again, resulting in even wider losses.

Ocwen is now considering reworking that Barnes' loan.

"I got a call from Ocwen out of the blue," said Chris Barnes. "They now want to work with me to resolve my situation."

Courtesy CNN Money

Wednesday, November 5, 2008

Country's Problems Solved

It has been a while since I have blogged, but with the election of 2008 over, I have the sudden urge now. With the election of Barak Obama, the Big O as I will now and forever refer to him as. All of the United States problems are now gone. With an African American President, this Country is no longer "racist". With the Big O, our overspending is over, the war in Iraq is over, the war in Afghanistan is over, discrimination is over, our negative view in the world is gone, and so on and so on. The Bog "O" has a democratic congress, so THERE IS NO EXCUSE FOR HIM AND HIS PARTY TO NOT SET THINGS STRAIGHT IN THIS COUNTRY! I am looking forward to the next 1000 years being smooth and peacefull. Lets see what he does. Personally I think he will be the most "handicapped" President since this country was founded. He has raised expectations so high by not detailing his plans, so every group that voted for him is expecting everything from him. This will hobble him. He will leave office more unpopular than Hoover was. I am only hoping that Sarah Palin stays active and I can take an active role in her campaign in 2012.

Tuesday, October 7, 2008

Who Wants Wachovia?

Well it seems that a war has broken out between Citigroup and Wells Fargo over who gets to buy Wachovia. According to Wachovia's filings last week, they stated that if Citigroup didn't buy them out that day, there was a good chance that Wachovia would be siezed by federal regulators. WAIT A SECOND HERE! Wasn't this the bank that only a couple of months ago was still pushing option arms? Wasn't this the bank that was supposed to be so solid in statement after statement by senior management, ie Ken Thompson? Now it would seem to me that people bought and sold stock, invested money with, applied for mortgages, opened accounts based on this "information" from the CEO and the Company. Where are the regulators? Where is the FBI? Why aren't these people being indicted? I thought banks were highly regulated institutions. Who is lying here? What happened to our money? Well,you can be the judge of that.
Seems Wachovia manages a fund that several large colleges and universities use, and when these organizations wanted to pull their money from this fund, Wachovia initially limited them as to how much they could take out. What happened to that money? Well, inquiring minds want to know......Stay tuned on that one.

I know it seems like I am picking on Wachovia, I am not, there are many wonderful people that work there and most of them had no idea of what was really going on. What we need is to find out who knew what when, dramatically scale back branch banking giants like Wachovia, and return to small local community banks. Those are easier to keep an eye on.

Sunday, September 28, 2008

Who Wants Wachovia?

NEW YORK ( -- A bidding war for Wachovia has erupted between banking giants Citigroup and Wells Fargo, according to a published report Sunday night.

Citing people involved in the talks, The New York Times reported that the discussions come as concerns have grown about Wachovia's viability, despite a breakthrough reached Sunday by Congressional negotiators on a $700 billion bailout for the financial system.

Rumors of deal talks arose on Friday as published reports said that Wachovia was considering a deal with Citigroup (C, Fortune 500), Spain's Banco Santander (STD) or Wells Fargo (WFC, Fortune 500).

Sunday's report in The Times added that the Federal Reserve and Treasury Department were also participating in the discussions, but that the government is refusing to help bidders by guaranteeing a part of Wachovia's assets the way it did for Bear Stearns in March when it was sold to JPMorgan Chase (JPM, Fortune 500).

The government was also not ready to take over Wachovia the way it did Washington Mutual last week, The Times reported, unless its financial position deteriorates more rapidly.

Timing for a deal was not clear, and the talks could extend beyond Sunday night, The Times said.

Wachovia (WB, Fortune 500) shares were hit particularly hard on Friday - the stock lost nearly a third of its value.

Though the stock closed at $10 on Friday, Citigroup and Wells Fargo are unlikely to bid more than a few dollars a share for Wachovia, according to The Times.

Also unclear, The Times said, was whether the banks would bid for all of Wachovia or pieces. Wachovia's retail banking operations would help Citigroup and Wells Fargo expand their branch networks, The Times said.

Spokespeople for Citigroup, Wachovia and Wells Fargo declined to comment on Friday. A representative for Santander was not immediately available to comment.

This isn't the first time that Wachovia has been mentioned entering tie-up talks. A little over a week ago, there was rampant speculation that Morgan Stanley and Wachovia were reportedly discussing a merger. A deal between the two firms looks increasingly unlikely though after Morgan Stanley (MS, Fortune 500) agreed to sell up to a fifth of itself to Mitsubishi UFJ Financial Group (MUFG), one of Japan's largest banks, earlier this week.

Following a string of high-profile collapses of banks in recent weeks, there has been increasing speculation that Wachovia could be the next one to go.

Wachovia reported losses during the past two quarters due in large part to its exposure to U.S. mortgage market. Some analysts have cited the company's ill-timed 2006 acquisition of the California mortgage lender Golden West Financial Corp. for its current woes.

A Wachovia representative stressed in a statement on Friday that it has a "strong retail franchise and large and stable deposit base," adding that it was working to strengthen both its capital and liquidity.

Were Wachovia to enter a deal, it would mark yet another big shake up of the nation's banking industry, which has undergone a dramatic transformation in the past two weeks including the demise of Lehman Brothers, the acquisition of Merrill Lynch by Bank of America (BAC, Fortune 500) and the failure of Washington Mutual and subsequent purchase by JPMorgan Chase.