An Offer 10 Banks Could Refuse

by The Wall Street Geek on June 9, 2009 · 1 comment


Ten bailed-out banks were deemed healthy enough to return almost $70B in TARP money to the Treasury:
  • JP Morgan Chase
  • Goldman Sachs
  • Morgan Stanley
  • American Express
  • Capital One
  • US Bancorp
  • Bank of NY Mellon
  • BB&T
  • State Street
  • Northern Trust

Interesting scenario because if I were offered a loan at 5%, I would hang onto it.

Then again, this particular loan had clauses that restricted compensation and allowed government and ultimately public scrutiny over spending patterns. So it’s no surprise that these notoriously private banks treated TARP like a hot potato.

It also doesn’t hurt that an early payback makes these banks look good. Which in turn may bolster their stock prices–an example of fiscal strategy impacting PR.

However, although it appears that the umbilical cord to the government was completely clipped by returning TARP funds, a few of these banks are still receiving government aid. For example:

  1. The Temporary Guarantee Liquidity Program: Among other things, this program supports capital-raising via commercial paper, et al, to help banks maintain their capital requirements and keep their doors open.
  2. TARP Payments from Other TARP Institutions: AIG still has its TARP money. It also still has credit default swaps on its books, and owes payment to counterparties (which can be other banks).

    It’s widely discussed, for example, that Goldman Sachs will receive additional TARP money as the counterparty on AIG derivative contracts. But there’s nothing wrong with that–if you bought an insurance contract and needed it paid out, you would be entitled to receive the payout no matter the source.

It’s a positive step that these banks are returning TARP money. But the recovery isn’t over yet for these banks.

And as a side note, imagine if this returned TARP money were loaned at a low interest rate to consumers with mortgages and credit card debt so that consumers could payback their high interest loans early?

It wouldn’t be completely equitable since it’s our taxpayer money anyway, plus some taxpayers paid more than others. Nevertheless, it would be an offer none of us would probably refuse.

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Price CapitalAfter turning $1100 into $7015 in the stock market right out of college, Michelle worked 15 years on Wall Street at Morgan Stanley, Citigroup and Goldman Sachs. She wrote "How to Buy Stocks Online", and is a fee only financial advisor providing investment help in New York City.


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