Earlier today, ten of the nation’s largest banks received permission from the Treasury to repay a fraction of the amounts loaned out.
I know, it’s kind of bizarre. Permission to pay back a loan early? You’d think the feds would be thrilled.
Here’s the scoop. While some of the banks were begging for funds, others were forced to take the funds at the insistence of the Bush administration in an attempt to stabilize the financial system. The idea was that forcing banks to take the money would free up capital for small business loans and home mortgages. Whether that happened or not has been argued at length. But at least ten banks have convinced the Obama administration that they now have sufficient capital to begin repayment efforts. Those banks are: American Express, Bank of New York Mellon, BB&T, Capital One, Goldman Sachs, JP Morgan, Morgan Stanley, Northern Trust, State Street and U.S. Bancorp have all been approved by the Treasury to return some funds. None of the banks have disclosed when and exactly how much they will repay. My money’s on soon.
Why the rush to pay it all back? Congress has put limits all over financial institutions with TARP funds – from tax limitations to executive comp caps to restrictions on immigration visas. Not surprisingly, private corporations don’t like the politics so much and they want to get out.
The feds expect to get about $68 billion back from those banks. Smaller banks have already repaid about $2 billion (sad, isn’t it that we’ve gotten to the point where $2 billion seems like a tiny amount of money?). This means that more than a third of the money initially handed out to banks will be coming back to the Treasury. The $200 billion bank hand out is part of the overall $700 billion bail out using federal dollars to boost the economy.
Despite the “good” news, the Dow did not rally today, ending just slightly lower. It’s hard to know what that means – the market is so volatile these days. Is the worst over? We can hope.
The House moved quickly to vote yes on a bill to tax big employee bonuses given by companies who have taken substantial amounts of TARP money. The bill would impose a 90% tax on bonuses to highly compensated employees of companies that received more than $5 billion (with a b) in TARP money from the government.
The final vote was 328-93, one of the most bipartisan bills yet to pass the House. At the close, almost as many GOP Reps had voted yes as voted no, a stark contrast from prior bills this season, including the stimulus bill. 243 Democrats and 85 Republicans voted yes, while just 6 Democrats and 87 Republicans voted no.
The measure now moves to the Senate where it faces an admittedly more difficult vote. However, Senators from both sides of the aisle had proposed similar legislation earlier in the week; the Senate version had considered a less painful tax on the employee side with the imposition of a matching tax on the employer side.
I would not be surprised to see a modified version of the bill passed by the end of the month. It’s March madness on a totally different level.
The House Committee on Ways and Means has announced that Rep. Charles B. Rangel (D-NY) has introduced legislation to tax executive bonuses. The legislation, if passed, would affect bonuses received after January 1, 2009. You can read the text of the bill here as a pdf.
The legislation, which has been introduced as H.R. 1586 imposes a tax of 90% on bonuses of “highly paid individuals” (meaning those with AGI of $250,000 or more) for employees of companies which have received $5 billion or more under TARP. Hmm… Who could that be? Thinking… Thinking…
Could it be AIG? And Bank of America?
Interestingly, as Congress ramps up the restrictions on TARP money, more and more banks are miraculously finding that they really don’t need the money after all. In recent weeks, banks such as Sun Bancorp, Inc., the parent company of Sun National Bank, have indicated that the program is more trouble than it’s worth; Sun says it will return the $89 million of TARP funds that it has received. Makes you wonder why they took it in the first place.
Other banks, like Wells Fargo, are already whining about the “cost” to the banks. Wells Fargo cut its dividend pay out in order to repay TARP money. Wells’ CEO, Jeff Stumpf, has said, “These actions will help us repay the government’s investment at the earliest practical date. The U.S. Treasury’s Capital Purchase Program investment is generating a return for the U.S. taxpayer — at significant cost to the company.” Um, but that’s what lenders do, right, Mr. Stumpf? They make money on loans. I guess it doesn’t feel so good in the other direction.
Meanwhile, smaller community banks are making very public the notion that they have not accepted TARP funds. Some of those banks include Auburn National Bancorporation, Inc., United Bancorp and Pennsylvania’s own Harleysville Savings Financial Corp.
The field keeps changing on this one day by day. Stay tuned!
