Don’t look now, but those battered banks may just survive after all—if only our federal government would let them get out of jail.
Wells Fargo led off this reanimation by pre-announcing a surprising $3 billion-plus in first-quarter earnings last week. Goldman Sachs followed up on Monday night, bumping up its first-quarter earnings report a day early to reveal it had reaped net income of $1.81 billion or $3.39 a share, double what Wall Street had expected.
Morgan Stanley and Citigroup could be a buzzkill if they report bleak results. Still ... At long last we see a ray of hope. So, inevitably, the next question arises: How long will it take for President Obama and Congress to find something odious in the banks’ rebound? As in: We rescued these financial Gullivers with taxpayer dollars—how dare they turn a profit!
You can see this concern rising as Goldman Sachs begins its new secondary stock offering this week, aimed at raising $5 billion to help it pay back all $10 billion it got in federal TARP funding. The second paragraph of the Goldman press release states:
“After the completion of the stress assessment, if permitted by our supervisors (emphasis mine). . . Goldman Sachs would like to use the capital raised plus additional resources to redeem all of the TARP capital.”
If permitted by our supervisors??? Goldman Sachs, one of the most powerful investment banks in the world, run by some of the smartest guys on Wall Street, has been brought to heel by a bunch of government wonks who think the banks need to be reined in and punished.
Don’tcha just hate that?
President Obama further soured the mood Tuesday in his mid-morning speech on the economy. “He quickly slid back into the ‘hate-Wall-Street’ mantra,” says Steve Grasso, a CNBC contributor with brokerage firm Stuart Frankel. “Government can’t create anything unless it takes from someone else,” he says, “the 10% of people who pay 74% of the tax bill.”
Bam’s speech came on top of front-page news in The Wall Street Journal on Monday, saying the aptly named COP—the Congressional Oversight Panel that watches TARP—“is investigating the lending practices” and “examining instances of potentially inappropriate lending by banks that got taxpayer capital.”
Inappropriate? The banks are guilty, it seems, of raising fees and interest rates—which seems like the right move for loss-riddled lenders that want to get back in the black. Washington should applaud such efforts, not investigate them.
But apparently Congress and its chief enforcer, COP Chairwoman Elizabeth Warren, a Harvard law professor who rails against high credit-card charges, feel the banks should forgo any increases as recompense for the bailout. “In a sense, we’re asking taxpayers to pay twice,” she told The Journal.
No we aren’t. The banks didn’t ask for federal money—the feds forced it on them (never mind that some faced collapse without it). And the Treasury charges them a stiff 5% interest rate; government will turn a profit on this rescue. Nor did anyone cite evidence of bank collusion or illegality in this crackdown. If you don’t like your bank’s fee increases, you are free to switch to a rival bank, so what’s the problem?
Even some people inside the U.S. government say the COP goes too far. “I hate that [Journal] story,” says one official close to the matter. “Credit is in decline, risk goes up, how does a bank protect itself? It’s only natural” to raise fees where possible.
No wonder Goldman Sachs is so eager to get the heck out of TARP, and why some smaller banks were smart to turn down the government offer.
“It is amazing to me how the business environment is under attack from those people who are supposed to be supporting it,” says Frank Sorrentino, chief executive of North Jersey Community Bank, which qualified for TARP but turned it down. “There is way too much government intervention, and the sooner we understand that, the better off we all will be.”
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