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.

AMERICA'S MONEY CRISIS


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 (CNNMoney.com) -- 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

Courtesy CNNMONEY

Big Banks in Trouble

Big banks have only themselves to blame on this one. They entered markets and bought local community banks and for the most part erased any connection and duty they had to the local community. When a "big bank" takes over a local bank a number of things happen. All the money the bank kept locally was sent to another "central location"in another state. Most of the existing staff is let go and college "wannabees" were hired who have no clue past checking or savings accounts. They were hired and trained to sell the "product of the day" rather than what was best for the borrower. Then the local "trust" accounts were taken to a "central location" and, here a crime, the new managers of the trusts would then decide where the trust money would go, and often it wasn't what the trust was set up for initially. Example, there was a couple in Texas that saved all their lives and donated millions to a trust to support their favorite charity. A "big bank" came in and bought the local bank that was managing the trust. The "big bank" decided that the trust wasn't making enough money (the managers of the trust get paid on how much money the trust makes), so they stopped giving to the charity the trust was set up for. WOW! Now if the bank had been under local ownership and management it would of never happened.

Go into a bank today and go back in 30 days and see how many of the same people are still there. I worked for a year at a "big bank" as a mortgage loan officer and I was assigned a couple of branches to call on. I felt so sorry for the people at the branch. They were so overworked and under appreciated. Every day they would have their priorities by upper management changed, so in reality nobody could get ahead and people were constantly being shuffled around. It was like the bank didn't want anybody to become too good at their job.

Then came the mortgage mess. Where were the regulators during all of this? I saw a couple of them testifying on Capitol Hill and they sure didn't look smart to me. I never saw so many dumb looks in my life as I did that day. Whose money did the banks loose? Where did they get this kind of money to play with? Why does it seem that all their money was in mortgages? Why weren't they investing in their local communities by loaning money to businesses? Why aren't they responsible to the local community.

It seems to me that if we are going to allow "big banks" then they have to be held much more accountible for their actions. Otherwise I am all for eliminating "branch banking" and going back to much smaller and more responsible banks in this country.

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