Fine Print - January 2009

Looking under the TARP
By G.D. Gearino

Having trouble figuring out the rhyme and reason buried within the federal government’s Troubled Asset Relief Program? Me, too. That’s why I undertook a study of participation by North Carolina banks in the effort, in which the government invests in banks in the hope that the money will loosen a gridlocked economy. Here are my findings:

Number of community banks turning up on the Treasury Department’s list of institutions getting TARP money despite the fact that their significance to the national economy couldn’t be determined even by a team of Nobel Prize-winning economists using supercomputers: 1

Ever wonder why you don’t hear 1st Financial Services Corp. of Hendersonville come up when the CNBC crew hashes over business news after the markets close? It operates a 15-branch bank in the mountains, trades its stock over the counter and boasts that its success is rooted in “the little things” such as “the best coffee in town” and “fresh baked cookies daily.” So how did it end up with $16.4 million of TARP investment? As CEO Greg Gibson explains it, federal officials recruited the tiny banking company. “We have a reputation for not being afraid to try new stuff. We thought it would be good for the U.S. taxpayers.” Have a cookie, America.

Number of banks deciding that no good can come of having the federal government as an investor/shareholder, no matter how many times Treasury Secretary Henry Paulson assures them there will be no interference from politicians in the operations of their institutions: 2 (as of this writing)

Raleigh-based First Citizens couldn’t say no fast enough, and North State, also based there, soon declared it would prefer to be taken off the TARP mailing list, thank you very much. It’s comforting to know a few people in the financial industry still are skeptical when they hear: “We’re from the government, and we’re here to help you.”

Number of financially sound banks taking TARP money they don’t need but unable to grasp the implications of announcing that the taxpayer money might be used to expand their market share: 1

Even before BB&T officially became the recipient of $3.1 billion in TARP money, CEO John Allison told analysts that the Winston-Salem bank had bountiful lending capacity but that he viewed the public money as “a relatively inexpensive way to raise capital for acquisition opportunities.” Cue the predictable expression of outrage from U.S. Rep. Barney Frank: “I am deeply disappointed … Any use of these funds for any purpose other than lending — for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. — is a violation of the terms of the Act.” Practically before the TARP check arrives, BB&T shows up on the radar of the chairman of the House Committee on Financial Services. Is that what John Galt would do?

Number of big, stable banks that had billions of TARP money more or less forced upon them by federal regulators, who wanted to erase any “bailout” stigma from the program, only to find themselves set upon by a headline-hunting state attorney general who didn’t like how those banks planned to spend the money they neither demanded nor needed: 1

After Bank of America acquired Merrill Lynch during the dark days of the financial meltdown, it was left with the problem of how to keep Merrill’s deckhands on a listing ship. The obvious solution was to offer bonuses for staying. But New York Attorney General Andrew Cuomo, appalled at the (unfounded) idea of TARP money being used for executive compensation, asked for assurances that wouldn’t happen — then hit BofA with a subpoena when he didn’t like the response. He apparently didn’t understand or care that the Charlotte-based behemoth had lots of money of its own to do with as it pleases. It was like telling a kid to not buy candy with his lunch money when you know he’s got a pocketful of change beyond what you gave him — clumsy postur- ing to no actual effect.

Number of Business North Carolina columnists who can’t quite wrap their heads around how the federal government can be both an investor in banks and a regulator of them: 1

I bounced the question off two banking experts — one an academic, the other a retired CEO — and the answer in each case could be summarized thusly: Beats the hell outta me. The federal government’s cover story is that because it gets nonvoting preferred stock for its TARP investments, it has no influence over operations and maintains an appropriate arm’s length relationship. Only problem is, somebody forget to tell that to Barney Frank and Andrew Cuomo, among other politicians. They seem to think they’ve now got the right to tell banks how to run their business — because, you know, they’ve done such a great job with the nation’s business.