Banking CEOs, You Cannot Change Colors

The declaration of first quarter earnings is over. Like everybody else I was interested in updates from our banks. I was expecting another round huge loses and write downs, and downsizing. Fortunately or unfortunately, depending upon whether you believe the results, that was not the case. Most of the major banks showed profitability. I have reserved this argument for later. I was intrigued by the comments coming out of the banking CEOs. The CEOs of all major banks, viz., Bank of America, Citigroup, JP Morgan, Goldman Sachs, Well Fargo, BB&T (and may be more) have criticized governments heavy handedness and continued interference in the way these esteemed folks run their banks. This criticism was directed particularly at TARP program in which these banks took money from.

When government instituted the TARP program, these same bank CEOs were happy to take liquid capital to shore up their balance sheet. These CEOs were happy to take practically zero interest money from government. At that point in time, when panic set in (if we can call it?):

  • they could not make realistic projection to figure out what could happen;
  • they could not understand what is the state of their on balance sheet;
  • they could not understand that whether they really needed TARP money;
  • they could not figure out that there is no free lunch; and
  • they could not figure out that any large investors will need something in return (even if that investor is a government and not opportunistic private shark)?

What do you do with those millions that you get paid for, for indecisiveness? At that point in time, not a single CEO came out to proclaim they do not need TARP funding. Their house is in proper order. They kept quiet (were asked to keep quiet?).

Now when the largest investor (in this case government) is tightening screws, asking for accountability, and gunning for their heads, they are feeling uncomfortable. They are feeling this is way too much interference. In addition, many financial media pundits have claimed this will result in politicizing the lending from banks to common people. They cite Freddie and Fannie. Weren’t these banks lending freely until 2007, before the government came in with free money for you guys?

Banking CEOs now are coming out saying they want to return TARP money. Well, if you didn’t need it at first place, where is that money now? You should be able to give them back immediately? Why do you have to wait for government? Why do you need to go raise equity funding or capital issues in the private markets?

If these CEOs believe their house is in order, and they do not foresee any capital liquidity issue in near future, why they are not just returning TARP money back?

I am not a fan of government running our private corporations. It continuously runs our national budget in red, so they definitely do not have credentials to run profit center enterprises. They should limit their job to policy making and regulatory process. However, in this particular case, I would like to think government’s TARP funding like a shark investor. This shark gave these banking CEOs huge amount of liquid capital when they wanted. So what’s wrong in government asking for accountability (albeit the execution can be question, but keeping that aside).

Somebody needs to ask questions to these CEOs and hold them accountable. They should not be allowed to keep changing their colors as per economic season. There ain’t any fall season’s in economy or banking operations. This is not adapting. This is camouflaging.

2 Responses to “Banking CEOs, You Cannot Change Colors”

  1. Chris says:

    Great post. I agree with everything you had to say. While I do not want goverment involved in banking, that time has already come because of poor risk management. Let’s see if they want any goverment interference when they sell their toxic assets to the goverment under PPIP program. I am sure that is the kind of interference they love.

    • Dividend Tree says:

      Chris:

      Good to know somebody agrees with my thought process. Thanks for your comment and stopping by!

      Best Wishes,

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