Bailout conditions disturb large banks, validate locals who passed on the money
John Wilson, president of U.S. Bank in Springfield, said his bank's holding company has decided it's high time to bail out of the bailout.
"The devil's in the details," he said. "And as the details have come out, the advantage of taking this money down has diminished. ... I think that's what happened to us."
Richard Davis, CEO of Minneapolis-based U.S. Bancorp Inc., has been an outspoken critic of the Troubled Asset Relief Program, the $700 billion government plan designed to buttress the ailing U.S. financial system against collapse.
Last month, Davis publicly called TARP "lousy" and "just trouble" during a speech to the Thrivent Financial for Lutherans Business Leaders Forum, according to a report in the St. Paul Pioneer Press. After introducing the program as a way for banks to sustain lending and acquire troubled institutions, the rules have changed, Davis told the group.
"Now they're punishing you for having the capital," Davis reportedly said, adding that he wouldn't let U.S. Bancorp become "collateral damage in an attempt to nationalize the banks."
Wilson said U.S. Bancorp hopes to repay its $6.6 billion government loan within a year. About $1.25 billion of that TARP money was used to acquire two failed banks in southern California - Downey Savings and Loan and PFF Bank & Trust - but the balance hasn't been spent, he said. Still, the government appears intent on controlling executive pay and closely monitoring bank balance sheets.
"I guess what it really boils down to is, do we want to be a free enterprise society or not?" Wilson asked.
Executives at some of the country's largest financial institutions have echoed Davis' complaints about the continual stream of conditions placed on TARP participants by the U.S. Treasury. And some of the heated honchos are now claiming their banks were ordered by the government to take bailout money.
Ken Lewis, CEO of Charlotte, N.C.-based Bank of America, told the Charlotte Observer in late March that the Treasury essentially required the country's nine biggest banks to participate as a show of support for the congressionally approved bailout plan. Bank of America is now planning to pay back its $45 billion loan - offered at 5 percent in exchange for limiting executive pay and paying out quarterly dividends to the Treasury - by year's end, the Observer reported.
Also last month, California-based Wells Fargo Chairman Richard Kovacevich groused to an audience at Stanford University about mounting TARP restrictions, and called government-mandated stress tests for the largest players "asinine," according to a Reuters report. The Treasury has required institutions with more than $100 billion in assets to participate in its Capital Assistance Program, which permits federal regulators to evaluate whether the banks have sufficient capital should the recession deepen. Wells Fargo received a $25 billion TARP loan.
As the country's largest banks look to disassociate themselves from TARP, local bank executives who bypassed the bailout money said their instincts served them well.
Some thought the cost associated with the federal government's Capital Purchase Program - a TARP component through which the U.S. Treasury has acquired nearly $200 billion worth of preferred stock and warrants in American banks - was too high. Others were concerned about a dearth of details and had nagging suspicions the rules might change midgame.
Springfield-based Mid-Missouri Bank had initially planned to apply for the federal purchase program, but President and CEO Lee Keith said the bank never formally applied. The cost was the most obvious disadvantage, Keith said, adding that Mid-Missouri wasn't in a position to acquire other banks.
"A lot of banks took it with anticipation of acquiring other banks," he said. "In that case, maybe they can make a strong case. But unless you had real reason to put that capital to use, it seems like awfully expensive capital to me. ... It's 5 percent, but pretax, that makes it ... nearly 8 percent. And when you see interest rates at the level they're at right now, that's a pretty tough pill to swallow."
Keith pointed to Springfield-based Great Southern Bank, which sold 58,000 shares of perpetual preferred stock to the Treasury in December and acquired failed Kansas-based TeamBank last month. TeamBank had 17 locations in Missouri, Kansas and Nebraska.
"My guess is that's the kind of fit that the Treasury was wanting in the first place," Keith said.
Great Southern President and CEO Joe Turner told Springfield Business Journal last month that Great Southern would have been interested in acquiring TeamBank regardless of whether it had received TARP money.
Jim Bracht, CEO of Springfield-based OakStar Bank, said he doesn't expect OakStar to take TARP money, but the bank did submit an application to the Treasury and expects to be approved any day now.
"We're not convinced it's in the best interest of OakStar to participate in that program," he said. "I don't know that we see any drawbacks except for the unknowns. ... The overriding plus for us is that we have sufficient capital we can draw on. We don't need the capital. Therefore, we're going to be a little bit more picky on whether we want to participate or not."
In recent months, OakStar has seen increased interest from investors willing to support the bank based on its performance and capital ratios, Bracht said.
Arkansas-based Arvest Bank, which has branches throughout southwest Missouri, declined the government's offer for taxpayer money early on. The bank's stance is the thrust of new advertising campaign.
"If someone offered YOU millions of dollars, would you take it?" its print ad asks. "Arvest didn't."[[In-content Ad]]