Banks Lend, But Only TARP Money?

It looks like banks are lending; it just isn't clear if it's anything other than TARP funds. At least based on the timing and the amounts, it would seem that banks are putting little of their own money at risk. Rather, it appears they are lending only what they know they may not be on the hook for if things go further downhill. JP Morgan Chase (JPM) said on its Q408 conference call:

The TARP is a, depending on how you look at it, a three or five year preferred or something like that and so they’re not directly comparable and we’ll eventually repay the TARP and move on when we get through all this and right now you can’t repay the TARP because part of the agreement was that it wasn’t repayable without being replaced.

And you can’t replace that kind of thing in today’s market.

Maybe now you know exactly how much JPM got from TARP:

In the quarter we extended new credit of over $100 billion... I think we’re speaking for lots of banks here, people are out making loans. This quarter alone I think we did four million new credit cards, so we extended credit card loans, corporate loans, middle market loans, we bought $1.4 billion bond issue when no one else would bid on it from Illinois.

We’ve also in the interbank market we have had on average $40 billion or $50 billion out and into bank market, that is also a form of lending. And all of this is helped by the TARP so we think it’s a valid question people to ask what are doing with the TARP money and we do say its hard to separate exactly what is TARP money because remember we’re making loans all the time but we are trying to follow the intent and spirit of TARP which is to help the economy of the United States recover and make sure we’re financing people.

We even have done some major large syndicated leveraged finance loans and I’ll mention two, [InBev and Mars] but there’s several others. So we’re still in business.

Bank of America loaned $115 billion of its annual $150B loan spend in Q4 alone; just after the bank got TARP funds in Q4. From BofA.’s Q408 conference call: (BAC)

We originated $115 billion in new credit during the fourth quarter alone… Bank of America last year provided more than $150 billion toward lending, investing and grant dollars to America’s small businesses and communities and to support lower to moderate income individuals and communities.

============

To read JPM's full conference call transcript, click here. Seeking Alpha offers excerpts from our free earnings transcripts every day. To view other excerpts or to add the service to your watchlist, click here.

Comments

[CJJ:]

This place has the most ridiculous headlines. Here I'd like to ask what the point is. You provide no backup that your headline is true or even partially true. Thanks for blowing the top on the economic crisis with this whim.

Can I write an article called "American citizens Pay, For Food Not their Debts" where I talk about citizens walking away from their car loans, their credit card loans and their home loans not because they can't pay them but because they don't feel like paying them. It will have a section on the media being a group of rumor mongering alarmists.

Lets not all just jump in a circle jerk of blame on this stuff. SA seems to be part of ground zero for it.

Jan 22 07:49 PM

[Jake Berzon:]

TARP money is pretty much the only money BAC has to lend anymore, so I am glad to hear that they are not hoarding it, but using it, as it was intended - to make loans.

Jan 22 10:45 PM

[CJJ:]

Well if I was BAC I would be keeping very public records of these loans. That way when the recession deepens(just need to get my Bloomberg headline terms in there) and the loans they gave to solid borrowers default people might start to realize that although these banks got involved in a lot of risky loans much of this is a result of a deep, deep downturn no one was expecting.
At some point you need to stop looking for the causes(the cause is simple, the herd mentality was housing was going up forever) and look for solutions that are actually realistic and not going to cause everyone to lose their jobs to work. Kicking the can down the road actually isn't a bad alternative. At some point in the future the global community or the US population may come to its sense that for the greater good debt should be forgiven and growth restored.
My bet is globalization will have its hiccups but prevail. Cosumerism will have its hiccups but prevail. Growth will slow but will prevail.
In the short term though the downers will have the upper hand. You'll read about global warming, peak oil, peak water, food shortages, nuclear weapons, biological weapons, terrorism, religious extremists, government conspiracies, overdue volcanic eruptions, end of the world theories a plenty. The scariest and worst story is the best story.

Jan 22 11:50 PM

[John Lounsbury:]

Judy - - -

I think the headline and the facts reported are in good agreement. You reported what is known about two banks. For those of us who have been trying to figure out just what is happening to TARP funds, this is helpful. It appears to be a lot more information than I have heard from talking heads on CNBC and political channels.

Good work.

Jan 23 12:04 AM

[SA Editor J...:]

Interesting follow-up:
online.wsj.com/article...

"Ten of the 13 big beneficiaries of the Treasury Department's Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008, according to a Wall Street Journal analysis of banks that recently announced their quarterly results."

Jan 26 04:48 AM