No TARP Money? You Should Be Thrilled
At last count, 315 different financial institutions had received over $300 billion in TARP money. If you’re one of the thousands of other financial institutions that didn’t get a slice of bailout pie, you should be grateful.
Why? Because when you take money from taxpayers, you can expect a whole new level of scrutiny from the general public. Bailout banks may not be held accountable by the government, but nothing can stop the court of public opinion from rendering its opinions.
Take this example. After Webster Bank announced it was opening a new flagship branch, the Bristol Press ran a stern opinion piece questioning the why the bank received $400 million from the U.S. Treasury’s Capital Purchase Program. Why should the government be giving Webster money to build branches, the article asks, especially when the bank’s executives said they didn’t even need money for a bailout?
Reality Check: Banks getting bailout bucks better brace themselves. By not saying what they’re doing with their TARP injections, the public can only speculate… and people have wild imaginations. People will look at any expenditure — even new branches that could benefit them — as a waste of taxpayer money… their money.
And if one new branch is all it takes to get folks riled up, how do you think they’ll react when they hear that U.S. Bank, relatively healthy by today’s standards, just signed a sponsorship deal for the Minnesota Twins new ballpark? You can hear it now: “We gave them $6.6 billion dollars and they go sponsor a baseball team???” It doesn’t matter if this deal had been in the works for the last few years. People don’t care.
Bottom Line: TARP money is a no-win situation for financial institutions. Its net effect is to add a completely unmanageable PR nightmare on top of all their other woes. In 2009, a bailout bank won’t be able to spend a penny without someone chucking around accusations of waste, frivolity and lack of accountability.
UPDATE (This item came in just moments after this article was published): Someone studied the investor teleconferences of a couple dozen banks who got TARP injections. What are they doing with it? Most banks see the bailout program as a no-strings-attached windfall that could be used for anything they feel like, so they are using it for two things: (1) as insurance against a prolonged recession, and (2) mergers.
This article © 2012 by The Financial Brand and may not be reproduced.
Related Articles From The Financial Brand:
- Public Confused, Angry Over Credit Union ‘Bailout’
- The Boston Globe and Banks vs. Credit Unions: A Misguided Argument
- Credit Union Launches ‘Check In for Charity’ Social Media Drive
- BofA’s $5 Monthly Debit Fee: The Backlash, The Fallout and What It All Means
CASE IN POINT: Some bailout recipients upped lobby spending in 4Q
“The action raises questions about the propriety of big companies getting taxpayer support at the same time they’re pressing the government for legislative and regulatory help.”
- bank takes TARP
- Barney Frank (BF) effectively becomes the boss
- BF tells mgmt how much top producers can be paid
- BF tells bank who to lend to,and at what rate
- top producers leave to work where better results = better pay
- banks loan a lot of money to lousy borrowers at lousy rates
- BF’s actions create artificially low pricing that harms healthy banks
Sounds like a no win situation…
Lucas, I just realized you might want to be asking Barney Frank what he thinks about the Wachovia Championship sponsorship, not Wells Fargo.
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