Banking Law

Spinning TARP With Just The Right Velocity

A short article from Friday's St. Louis Business Journal crams a lot of viewpoints.

The article deals with the TARP CPP program, and complains that only four St. Louis banks have received investments from the Treasury under the program. The article's author further complains that even though 7,000 of the country's 8,000 banks are privately owned, most of the CPP funds thus far have gone to large, publicly-traded "giants" like Bank of America and Citigroup. On the other hand, the first bank executive who's quoted to the effect that the little guys are being passed over tells the author that his bank didn't want any of that stinkin ' TARP money anyway.

?We?re not a thought in their mind right now,? said Steve Baden, president of Royal Banks of Missouri, which had applied for $11 million but decided to withdraw because of the government stipulations that would come with the money. ?The more we researched it, we decided we didn?t need it and didn?t want to take on the government as a partner.?

Steve sounds like the leaders of a segment of banks I've discussed the TARP program with, who'd rather drive red-hot darning needles through their eyeballs than jump in bed with the US Treasury Department. Well, any further in bed than the national banks and federal thrifts among them already are.

Other banks recognize the risk, but either really, really need the capital, or are afraid not to take it in light of the fact that the immediate future of banking looks as bleak as Britney Spears' SAT scores. They've rationalized away their traditional caution when faced with the prospect that the federal government can change the terms of your deal and you won't even have a breach of contract claim, which provided some (albeit cold) comfort to screwed "partners" of the US Government in the bank and thrift bailouts of the 1970s and 1980s.

The article also touches upon the fact that taking or not taking the TARP money can be a dicey public relations event.

Banks are under no obligation to say whether they have applied for loans, but if they receive a loan, it is publicly announced.

Heartland Bank, for example, won?t say whether it has applied. ?There could be a negative spin if a bank applies and doesn?t get a loan,? said David Minton, Heartland?s president and chief executive. ?Or you could apply and, after investigating it, decide to withdraw your application.?

The government won't announce whose applications have been denied, either, for the perfectly sane reason that a denial could cause a run on the bank. Some bankers have told me that they believe that the public announcement of approval of an application might lead current and potential customers to consider that you're a weak bank that needs a bailout.

It's enough to drive a marketing man mad, eh?

Full post as published by Bank Lawyers Blog on January 26, 2009 (boomark / email).