The declaration of first quarter earnings is over. Like everybody else I was interested in updates from our banks. I was expecting another round of huge losses and write downs, and downsizing. Fortunately or unfortunately, depending upon whether you believe the results, that was not the case. Most of the major banks showed profitability. I have reserved this argument for later. I was intrigued by the comments coming out of the banking CEOs. The CEOs of all major banks, viz., Bank of America (BAC), Citigroup (C), JP Morgan (JPM), Goldman Sachs (GS), Wells Fargo (WFC), BB&T (BBT) (and maybe more) have criticized the government's heavy handedness and continued interference in the way these esteemed folks run their banks. This criticism was directed particularly at TARP program in which these banks took money from.
When the government instituted the TARP program, these same bank CEOs were happy to take liquid capital to shore up their balance sheet. These CEOs were happy to take practically zero interest money from the government. At that point in time, when panic set in (if we can call it that):
- they could not make realistic projections to figure out what could happen;
- they could not understand what the state of their balance sheet was;
- they could not understand whether they really needed TARP money;
- they could not figure out that there is no free lunch; and
- they could not figure out that any large investors will need something in return (even if that investor is a government and not an opportunistic private shark)?
What do you do with those millions that you get paid for, for your indecisiveness? At that point in time, not a single CEO came out to proclaim that they did not need TARP funding. Their house was in proper order; they kept quiet (were asked to keep quiet?).
Now when the largest investor (in this case the government) is tightening screws, asking for accountability, and gunning for their heads, they are feeling uncomfortable. They are feeling this is way too much interference. In addition, many financial media pundits have claimed this will result in politicizing the lending from banks to common people. They cite Freddie (FRE) and Fannie (FNM). Weren’t these banks lending freely until 2007, before the government came in with free money for you guys?
Banking CEOs now are coming out saying they want to return TARP money. Well, if you didn’t need it in the first place, where is that money now? You should be able to give it back immediately. Why do you have to wait for the government? Why do you need to go raise equity funding or capital issues in the private markets?
If these CEOs believe their house is in order, and they do not foresee any capital liquidity issues in their near future, why aren't they just returning the TARP money?
I am not a fan of the government running our private corporations. It continuously runs our national budget in red, so they definitely do not have credentials to run profit center enterprises. They should limit their job to policy making and regulatory process. However, in this particular case, I would like to think government’s TARP funding is like a shark investor. This shark gave these banking CEOs a huge amount of liquid capital when they wanted. So what’s wrong with the government asking for accountability (keeping the execution question aside)?
Somebody needs to question these CEOs and hold them accountable. They should not be allowed to keep changing their colors as per economic season. There ain’t any fall seasons in economy or banking operations. This is not adapting. This is camouflaging under one pretext or the other.
