Posts filed under “Finance”
Today’s featured MSM column is this Bloomberg discussion as to whether or not Treasury is sloshing the cash to banks that don’t really need it.
"The U.S. government’s $160 billion handout to banks from Niagara Falls to Beverly Hills is going mostly to lenders that need it least, putting weaker rivals at risk of being shut down or taken over, analysts say.
"This has the unintended effect of making the strong stronger and the weak weaker,” said Gray Medlin, founder of Carson Medlin Co., a Raleigh, North Carolina, investment bank focused on banking deals. "Banks that are getting bad exams and are under intense pressure from regulators won’t be successful in applying.”
The government buying spree has so far targeted two dozen regional lenders. One, PNC Financial Services Group Inc., immediately bought a competitor, National City Corp. Another, Saigon National Bank, had almost four times the minimum level of capital before selling a $1.2 million stake.
Treasury Secretary Henry Paulson is doling out cash to recapitalize lenders and jump-start takeovers. Besides PNC and Saigon National, regional lenders that have accepted government stakes in exchange for cash include SunTrust Banks Inc., Capital One Financial Corp. and KeyCorp. They also include City National Corp., in Beverly Hills, and First Niagara Financial Group Inc., in upstate New York."
As we have previously discussed, its time for triage — close the bad banks, recapitalize the good banks, and move forward.
The entire article is worth reading . . .
How to Repair What Ails Us (October 13, 2008)
U.S. Treasury Shuns Banks That Need Cash Most in Buying Spree
David Mildenberg and Linda Shen
Bloomberg, October 29 2008
Speaking of anecdotal sentiment indicators: What does a Lehman Brothers’ broker do with his days now? Untucked Films found out. Directed by Chuck Divak and Jonathan Emmerling.
OMG, this is hysterical:
Perfect entertainment for a quiet Friday —
Hat tip: themessthatgreenspanmade
So far, we in the US have had an ad hoc, half-assed, on-the-fly approach to resolving the credit and financial crisis.
The smartest bailout approach to date has been the British/Swedish/Buffett approach: Inject capital at a corporate capital structure level by buying preferred stock, rather than at the balance sheet level by buying bad assets.
Now, we read that the Treasury is considering following these other, smarter approaches:
"Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.
Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks’ balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.
The Treasury plan was still preliminary and it was unclear how the process would work, but it appeared that it would be voluntary for banks.
The proposal resembles one announced on Wednesday in Britain. Under that plan, the British government would offer banks like the Royal Bank of Scotland, Barclays and HSBC Holdings up to $87 billion to shore up their capital in exchange for preference shares. It also would provide a guarantee of about $430 billion to help banks refinance debt."
Sure its a year late, and a trillion dollars short. Yes, this would have saved most of the firms that went belly up.
Better late than never . . .
UPDATE: October 9, 2008 2:18 pm
The way we have the government buys into a cop-any via prefereds is to match any private sector investment into banks on the same terms. So GE and Goldman Sachs get double the capital injection, and since Warren did it on those same terms, we know Uncle Sam isn’t getting ripped off.
If you cannot raise dollar one, Uncle Sam doesn’t waste any good money on you.
UPDATE 2: October 9, 2008 2:40 pm>
Greg Mankiw discusses a similar approach: How to Recapitalize the Financial System
5 Historical Economic Crises and the U.S. (February 09, 2008)
Global Financial Crises, Part II: Norway 1987 (February 10, 2008)
U.S. May Take Ownership Stake in Banks
EDMUND L. ANDREWS and MARK LANDLER
NYT, October 8, 2008
“Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming himfor telling you that you are sick.” -Dane Mott , JPMorgan Chase & Co. > The debate on fair value accounting, FASB157, and transparency continues apace. If you want to understand why this is…Read More
WaMu is now toast, forced into the waiting arms of JPM.
Here are the specifics from the Office of Thrift Supervision:
Receivership – With insufficient liquidity to meet its obligations, WMB was in an unsafe and unsound condition to transact business. OTS placed WMB into receivership on September 25, 2008. WMB was acquired today by JPMorgan Chase. The change will have no impact on the bank’s depositors or other customers. Business will proceed uninterrupted and bank branches will open on Friday morning as usual.
WaMu Fails, Is Sold Off to J.P. Morgan
Biggest Banking Collapse in U.S. History; Government Arranges a Deal to Safeguard Huge Thrift’s Deposits Branches
ROBIN SIDEL, DAVID ENRICH and DAN FITZPATRICK
WSJ, SEPTEMBER 26, 2008
JPMorgan Buys WaMu’s Deposits as Thrift Is Seized
Ari Levy and Elizabeth Hester
Bloomberg, Sept. 25 2008