Treasury Secretary Timothy Geithner told Congress on Wednesday that the administration will extend the government's TARP until next fall, saying it's needed to protect against fresh economic shocks. Chris Kotowski, of Oppenheimer & Co, and Jeff Harte, of Sandler O'Neill, discuss how the extension will affect the financial sector.
“The key to TARP to me is was it got us through the crisis a year ago…[so] I think it achieved its purposes,” Harte told CNBC. “As far as extending it on ... I don’t see the TARP in itself being extended as a bad thing, but it does open up a question as to what it will be used for.”
If the Federal Reserve starts to tighten, Harte said investors should look into the money-center banks and investment banks, where there’s less spread revenue exposure that could become a challenge and less commercial real estate exposure, where the next credit losses could potentially come from.
“There’s still a lot of economic uncertainty out there and from a government standpoint, they don’t want to TARP funds back only to have to issue them out again,” he said. “So they’re being awfully cautious and making sure that the banks that are paying back TARP are financially sound enough.”
In the meantime, Kotowski said the TARP was a psychological boost, but it was never really effective capital for industries.
“All the analysts always 'backed out' the figures, and the TARP was never counted as tangible common equity, he said.
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Kotowski has investment banking clients who own shares of Wells Fargo. Additionally, Oppenheimer & Co. has managed or co-managed a public offering of securities for Wells Fargo.
No immediate information was available for Harte or his firm.