Banks Claim They Are Lending TARP Funds After All
February 19, 2009 – The Troubled Asset Relief Program, or TARP disbursed $294 billion to 317 financial institutions by January 23rd, yet it still isn’t clear whether the lenders are using the money to do more lending or, indeed, what they are doing with it, according to a report by the Government Accountability Office (GAO).
The GAO recommended broadening the scope of monthly TARP surveys to “further improve the integrity, transparency, and accountability of the program and more clearly articulate and communicate a strategic vision.”
The Treasury Department released a Feb. 4 statement indicating that senior executives at institutions receiving exceptional financial recovery assistance will be limited to $500,000 in annual compensation. The executives, however, can receive restricted stock that vests when principal and interest on government debt has been fully repaid.
The number of executives subject to clawback provisions has been increased to 25 from five, while shareholders must approve senior executive compensation. In addition, a ban on golden parachute payments will be extended to the top 10 executives from the top five banks, and the next 25 executives will be limited to golden parachute payments of one year’s salary.
In testimony before the House Committee on Financial Services earlier this month, American Bankers Association President and Chief Executive Officer Edward L. Yingling called on the Treasury to fulfill the TARP commitment to community banks.
He endorsed TARP’s specific citation of S-corporations — which have disproportionately been impacted by the current economic crisis even though their role was limited. He noted that the Treasury began allowing S-corporations to issue subordinated debt for TARP investments — extending TARP’s reach by 2,500 institutions.
Yingling also called for an end to the disparity between TARP terms for S-corporations that are stand-alone banks versus those for other institutions. He specifically recommended provisions that would enable wider participation by the nation’s mutual banks.
At the same hearing, Federal Deposit Insurance Corporation Deputy Chairman and Chief Operating Officer John F. Bovenzi supported equal TARP access for community banks — institutions with less than $1 billion in assets. So far, Bovenzi noted, 1,600 community financial institutions have applied to the program.
“The goal of providing government support is to ensure that such cut-backs and adjustments are made mostly in areas such as dividend policy and management compensation, rather than in the volume of prudent bank lending,” Bovenzi, who is also the acting CEO of IndyMac Federal Bank said.
But mortgage bankers want to see TARP funds redirected as originally proposed – buying non-performing assets off bank balance sheets.
“Above all else, we believe it is important to return TARP to its original purpose, which was to purchase non-performing assets off banks’ balance sheets,” Mortgage Bankers Association President and CEO John A. Courson testified.
A $372 million TARP dividend was declared and paid by Wells Fargo last month, the San Francisco firm announced. Wells said it has originated or commited to almost $500 billion in loans since credit began contracting 18 months ago.
Bank of America announced that it paid a $402 million dividend to the U.S. Treasury on its $45 billion in outstanding government investments. Government investments included $15 billion in TARP funds, $10 billion as part of its agreement to acquire Merrill Lynch & Co. Inc. and $20 billion that was provided by the government to help facilitate the acquisition of Merrill.
B-of-A claimed $115 billion in new credit extended during the fourth quarter.
In an interview with CNBC earlier this month, B-of-A CEO Ken Lewis said he hoped to payoff TARP investments within three years. He indicated that the Charlotte, N.C.-based institution doesn’t expect to seek any further TARP investments.
CitiGroup reported this month that it had deployed $45 billion in TARP capital so far, including $26 billion in residential originations, $6 billion in credit card lending and $3 billion in personal and business loans.
“We have already approved $36.5 billion in initiatives backed by TARP capital that are consistent with the objectives and spirit of the Treasury program,” Citi CEO Vikram Pandit said in the statement. “And, as part of our ongoing business, Citi continues to lend to consumers and businesses in the United States, where we extended approximately $75 billion in new loans during the fourth quarter.”
More than $300 million in TARP investments in Sterling Financial Corp. will be utilized for new and enhanced lending initiatives, a press release last week said. Sterling said residential lending subsidiary Golf Savings Bank was allocated $25 million, while commercial bank subsidiary Sterling Savings Bank was allocated $208 million to increase “lending activity to creditworthy borrowers.” The rest of the capital was retained by Sterling.
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