Tuesday, June 2, 2009

Wall St. vs. Uncle Sam: Tensions Rise as Banks Seek to Escape from TARP

Banks are raising capital at a furious pace as Wall Street firms seek to pay back TARP funds and get out from under what they consider onerous government oversight.
As JPMorgan CEO Jamie Dimon said yesterday in a conference call with analysts: "We believe we've met all the terms to get out of TARP. If we don't get out of TARP, we would be very surprised. We don't think we should be surprised."

The government will almost certainly allow banks to repay TARP, but the timing is uncertain and the process may not be so straightforward, says Kate Kelly, a Wall Street Journal reporter and author of Street Fighters: The Last 72 Hours of Bear Stearns. Ironically, Kelly tells us banking executives feel they are "underrepresented" in Washington D.C . and reports on one who only half-jokingly plans to ask for a refund on his campaign contributions.

Many on Wall Street are fearful of "retroactive rule-making" by the government, Kelly says, citing as an example this week's requirement to sell equity in the private markets - in addition to non-FDIC insured debt, as previously prescribed. This pushback from Wall Street may come as shock to Americans disgusted by the government's kid gloves treatment of banks and their creditors -- especially compared with Detroit.

This outrage is one of the issues potentially muddling the rush to repay TARP, Kelly says: The Fed is concerned about another leg down in the economy and understands there is neither the popular nor political will for more bailouts, especially of Wall Street. There's also the matter of the taxpayer losing any potential return on its warrants if the banks are allowed to repay TARP, as The NYT's Eric Dash reports.

Meanwhile, the capital raises from private sources rolls on. In just the past 48 hours:

- Several firms sold stock to raise capital, including JPMorgan ($5 billion), Morgan Stanley ($2.2 billion), SunTrust Banks ($1.4 billion), and American Express ($500 million).
- Goldman Sachs (which previously raised $5 billion in a stock sale) sold $1.9 billion of its stake in Industrial and Commercial Bank of China.
- Bank of America said it has raised close to $33 billion, including $7 billion over the past six days alone.

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