Misperceptions on Wells Fargo and the TARP

Misperceptions:

• That Wells Fargo wanted it! They were asked to take it! Answer: here
  
• Why did the government force this upon the banks: Because of fractional banking, the "gift-so-called" increased bank capitalization and enabled the banks to loan more money (to ease the credit crunch of a year ago)
  
• That it was somehow a "gift". Answer. The Government bought $ 25 B of preferred stock. What is preferred stock? Answer: here. What it meant to the stockholders (the common stock ones .... as I once was!): We surrendered our dividends!
  
• That it should have been "given out" to borrowers. Answer: One cannot both blame the banks for making poor loans AND encourage them to afford EZ credit for people who cannot pay!
  
• That it "cost" the government. Bank TARP recipients paid 5% interest on the TARP funds!
  
• Comment: TARP funds given to GM and Chrysler are not likely to be ever paid back.

Wells Fargo repays $25 billion TARP bailout

Excerpt:

Wells Fargo & Co, the fourth-largest U.S. bank by assets, on Wednesday said it repaid the $25 billion government bailout it received during the financial crisis, after last week selling $12.25 billion in stock.

Wells Fargo also paid dividends of $131.9 million to the government as part of the repayment, it said in a statement. The bank has paid $1.44 billion in dividends on the government's investment since it took the bailout, it said.

More details:

Companies receiving TARP funds

Companies that have paid back TARP funds (this is not current with today's news of WFC paying the TARP back)

An additional fact about TARP and the banks (at least Wells Fargo):

Eye on Wells Fargo

Wells Fargo was among the eight large U.S. banks to receive the Treasury Department's initial round of capital investments -- money described by Treasury officials not as a bailout, but rather as funds to help bolster "healthy" banks in tough times.

As part of the so-called "bailout", the government continues to hold warrants to purchase approximately 110 million shares of Wells Fargo common stock at an exercise price of $34.01 per share. This is tantamount to an option to buy stock at a set price. Wells is at $ 25 or $ 26 today. Were the stock to climb to $ 40 per share, the government could make $ 6 per share X 110 M = $ 660,000,000!

Wells Fargo completes repayment of TARP

Wells Fargo today redeemed the $25 billion of series D preferred stock issued to the U.S. Treasury under the Troubled Asset Relief Program’s Capital Purchase Program.
As part of the redemption of the preferred stock, Wells Fargo also paid accrued dividends of $131.9 million, bringing the total dividends paid to the U.S. Treasury and U.S. taxpayers to $1.441 billion since the preferred stock was issued in October 2008. As previously stated, by repaying the TARP investment, Wells Fargo will eliminate $1.25 billion in future annual preferred stock dividends. The U.S. Treasury continues to hold warrants to purchase approximately 110 million shares of Wells Fargo common stock at an exercise price of $34.01 per share.

Comment: The TARP they were forced into!

WFC: Preparing to repay TARP

Wells Fargo to Repay TARP ‘Shortly’

Excerpt:

Wells Fargo & Co. plans to repay the U.S. bank bailout program “shortly” without selling equity, a tactic that would protect stakes held by investors including Warren Buffett’s Berkshire Hathaway Inc.

“We will pay it back, but we’re going to pay it back in a shareholder-friendly way,” John Stumpf, president and chief executive officer of the San Francisco-based lender, said yesterday in an interview on Bloomberg Television. “We are now earning capital so quickly, organically, we don’t want to dilute our existing shareholders.”

Wells Fargo has chafed under extra government scrutiny that came with a $25 billion investment from the Troubled Asset Relief Program. Regulators told the bank in May to bolster its balance sheet after “stress tests” found a $13.7 billion capital gap, spurring speculation that Wells Fargo would sell shares. The stock dropped 11 percent this year through yesterday.

“We will pay it back shortly,” Stumpf said in the interview. He declined to give a date because an agreement depends on talks with the Federal Reserve, adding that he’s confident about reaching an accord. “Of all the issues I’m dealing with, this one doesn’t keep me up at night,” he said.

Comment: 'Bout time!

TCF to rid itself of TARP

TCF Financial Corp. to return $361.2 million in federal bailout money

Excerpt:

TCF Financial Corp. said it received government approval to return $361.2 million in federal bailout money, and will cut its quarterly dividend by 80 percent.

The Wayzata-based regional bank, which has $16 billion in assets, originally received an investment from the U.S. Treasury Department's Troubled Asset Relief Program, TARP, last November. But after tighter restrictions were placed on banks receiving the funds, TCF chief executive Bill Cooper filed notice in March that he intended to return the funds.

On Monday, TCF said the U.S. Treasury gave the bank permission to buy back all the 361,172 shares of preferred stock it issued to the government under TARP, effectively enabling the bank to exit the bank bailout program.

The move will boost TCF's profits because it means the bank will not have to make dividend payments to the U.S. Treasury. The bank estimates its earnings per share will improve by over 14 cents per share annually as a result of the move.

"Participation in the TARP has created a competitive disadvantage for TCF and we believe it is in the best interest of our stockholders to repurchase these shares," Cooper said in a written statement.

Comment: Good for them!

Treasury won't let TCF return TARP

Treasury Allows New Bank to Return TARP Funds, Keeps Other Bank Waiting

Excerpts:

... the Treasury Department is allowing another bank to return money loaned to it under the Troubled Asset Relief Program (TARP), it is still keeping one institution – TCF Financial – in the lurch, declining to tell it or CNSNews.com why it has taken more than the required 30 days to process the money-return request.

...

TCF Financial, based in Wayzata, Minn., also thinks that Congress has changed the rules and would like to return taxpayers’ money as soon as possible. However, according to TCF spokesman Jason Korstange, the Treasury Department has not approved the return yet, nor have they told TCF why they are taking so long.

“Not yet, we’re hoping to hear any minute, any day,” Korstange told CNSNews.com. “We have not heard back. We have certainly talked to them, but we haven’t received an answer yet.”

Korstange said that Treasury had not provided a reason for the delay, but noted that TCF had given Treasury everything it asked for.

“No reasons,” he said. “We’ve given them a lot of information, any information they ask for, any information we thought was necessary.”

Korstange explained that Treasury had originally invited TCF to apply for TARP funds, saying it wanted the participation of healthy banks to mitigate the shock to the financial system from the failure of large firms like Lehman Brothers and Bear Stearns.

TCF agreed, wanting to do its civic duty by aiding the government in keeping the nation’s hobbled financial industry going.

“They came to all the banks,” said Korstange. “They did come to us and suggested that it would be a good idea, that if you didn’t take it you would be looked on as a bank that couldn’t get it, that you were too bad to get it.

“It made sense to do it at that time. We thought we were being good citizens. We didn’t need the money,” Korstange added.

The $700-billion TARP was passed by Congress and signed into law by President George W. Bush last fall.

The law says that the Treasury Secretary "is authorized to establish the Troubled Asset Relief Program (or ‘TARP’) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary. ...

“The term ‘financial institution’ means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States ...."

Korstange said that changing the rules of TARP and demonizing banks that participate in it ultimately hurts the government’s own efforts, because the TARP program is the best recovery program the government is offering.

“It’s the best thing the government has going for it right now, as a matter of fact, [because] it’s not given to the bank, it’s a loan,” Korstange told CNSNews.com. “We’re paying dividends on it. They’re getting 5 percent. To be perceived as this ogre that’s out there gobbling up all this tax money is just wrong.”

That negative perception, fueled by the actions of both the Obama administration and Congress, pushed TCF to get out of TARP. Korstange said that when the government decided it could tell banks how to do business, it had gone too far.

Comment: Once the government's hand get's in your pocket it's hard to get it out!

JPMorgan Chase: tired of being a "TARP baby"

Dimon Says He’s Eager to Repay ‘Scarlet Letter’ TARP

Excerpt:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who today reported first-quarter profit that beat analysts’ expectations, said his firm could repay U.S. government rescue funds “tomorrow.”

Dimon, calling money received through the Troubled Asset Relief Program “a scarlet letter,” and “the TARP baby,” said on a conference call today that the New York-based bank is awaiting guidance from the U.S. Treasury Department. “We could pay it back tomorrow,” he said.

The 53-year-old CEO took $25 billion in U.S. government rescue funds last year. He’s fared better than most of his rivals in guiding the company through the financial crisis, taking $33.3 billion in writedowns, losses and credit provisions through the fourth quarter. That compares with $88.3 billion at New York-based Citigroup Inc. and $55.9 billion at Merrill Lynch & Co., now part of Bank of America Corp., the biggest U.S. bank.

“We learned our lesson” about borrowing from the government, Dimon said.

Comment: We should all learn that lesson. That whenever the Federal Government "gives" it comes with a whole lot of strings and wires!

It's all about control!

Obama Wants to Control the Banks - There's a reason he refuses to accept repayment of TARP money

Excerpt:

Here's a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). 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.

Think about it: If Rick Wagoner can be fired and compact cars can be mandated, why can't a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can't special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit -- until now.

Comment: Title says it all. There is a giant government GRAB taking place in our economy. Statism is the word for it!

Dick Kovacevich on TARP and "stress tests"

Wells Fargo Assails TARP, Calls Stress Test ‘Asinine’

Excerpts:

Wells Fargo & Co. Chairman Richard Kovacevich criticized the U.S. for retroactively adding curbs to the Troubled Asset Relief Program, which he said forced the bank to cut its dividend, and called the administration’s plan for stress-testing banks “asinine.”

When the U.S. Treasury persuaded the nation’s nine biggest banks to accept capital investments in October, it signaled the whole industry was weak, Kovacevich, 65, said in a March 13 speech at Stanford University in California. Even though Wells Fargo didn’t want the money, it must comply with the same rules that the government placed on banks that did need it, he said.

“Is this America -- when you do what your government asks you to do and then retroactively you also have additional conditions?” Kovacevich said. “If we were not forced to take the TARP money, we would have been able to raise private capital at that time” and not needed to cut the dividend to preserve cash, he said.

Kovacevich joins a growing list of bankers who are chafing at restrictions imposed by the TARP program, which affect lending, foreclosures, pay and perks. Lenders including Bank of America Corp., U.S. Bancorp and Goldman Sachs Group Inc. have said they want to give back the money. More than 500 banks, insurers and credit-card companies applied for TARP capital, and the government has distributed almost $300 billion.

...

Kovacevich said the government is still making mistakes as it tries to save the industry. The “stress test,” designed to determine which of the 19 largest U.S. banks need more capital, provides opportunities for short-sellers to drive down bank stocks and can hurt confidence in the system even more, he said.

The Obama administration announced the test last month and said it will help determine which banks are healthy enough to withstand surging unemployment and tumbling home prices. Results are due by late April, according to the Treasury.

....

“We do stress tests all the time on all of our portfolios,” Kovacevich said. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.”

Comment: Interesting read.

Fed TARP bucks come with "strings"

Some Banks, Citing Strings, Want to Return Aid

Excerpt:

Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens.

As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.

The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo.

They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds. On Tuesday, Signature Bank of New York announced that because of new executive pay restrictions in the economic stimulus package, it notified the Treasury that it intended to return the $120 million it had received from the government only three months ago.

Other institutions like Johnson Bank of Racine, Wis., initially expressed interest in seeking bailout funds but have now changed their minds. Bank executives told The Milwaukee Journal Sentinel that one reason they rejected the government money was to avoid any disruption in the bank’s role in the local community, including supporting the zoo or opera company if they chose to.

One of the biggest concerns of the banks is that the program lets Congress and the administration pile on new conditions at any time.

The demands to modify mortgages or forestall evictions are especially onerous, some bank executives and experts say, because they could prompt some institutions to take steps that could lead to greater losses.

Comment: "social engineering" indeed! Meanwhile did the Wells CEO get a raise or not? (snapshot from Google reader)

Wells Fargo CEO pay up 10 percent in 2008

Wells Fargo CEO's pay falls 21 percent in 2008