Traders: How to Save The Banks (Without Bailout)
A small (25 percent) but very vocal minority of the trading community continues to insist that the TARP bailout plan should not be passed because: 1) it is too expensive, and 2) will not be the savior of the markets.
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What would work? Traders who object to the bill have been citing the work of FDIC head Sheila Bair, who has become a star on Wall Street for her deft handling of the shotgun wedding between WaMu and JP Morgan, and Citigroup and Wachovia.
They argue that her M.O. is an effective template for dealing with other problem banks. They note that the two biggest problem banks, Wachovia and Washington Mutual, were transferred into stronger hands without government involvement.
They argue to continue to let Bair work, but this time with the mid-size regional banks. "She is undoubtedly going to a lot of these banks and saying, 'Hey, you've got two months to improve your capital position or you'll get merged,'" one trader told me.
There are other approaches that can be taken that will not cost the taxpayer so much money. Peter Boockvar at Miller Tabak and others have argued that banks should simply eliminate their dividends.
Here's the logic: Boockvar estimates that the 20 largest banks and investment banks pay about $40 billion in dividends, including:
- Bank of America $11.7 billion
- JPMorgan Chase $5 billion
- Wells Fargo $4.5 billion
- Citigroup $3 billion (after the dividend cut)
- U.S. Bancorp $3 billion
- KeyCorp $371 million
Eliminating these dividends would go a long way toward rebuilding capital. Plus, the ones who suffer would be the shareholders -- not the taxpayers.
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