34 Banks are Screwing You

Posted on November 14, 2009

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I know this will come as a complete shock to you, but your bank is screwing you.

34 Banks decided to just not pay the required payment of TARP dividends they are legally obligated to pay … and nobody noticed.

In a sign that more banks are no more controlled now than they were 150 years ago, 34 financial institutions just decided to blow off their quarterly dividends in October to the Treasury on funds obtained under the Troubled Asset Relief Fund (TARP).  Oh, and just to royally piss you off … this is the THIRD QUARTER IN A ROW THAT THESE BANKS HAVE SKIPPED THE PAYMENTS.

Of the 34 miscreants, two are pretty large, namely AIG, CIT, First Bancorp, etc.  All of whom reported “pleasing results” in their last profit reports.

Probably more important than the number of banks telling taxpayers to go pound sand is *TREND* since the number of institutions that skipped dividends nearly doubled. In a supposedly improving economy and with a steep yield curve (at least until very recently), things appear to be getting worse rather than better. What does it tell you that in just four months, TWICE the number of banks who were supposed to pay us back OUR money decided to just blow off the payment (but, of course, still rake in massive revenues and profits).

But what appalls me the most is that the usual band of somewhat reliable news suspects (Bloomberg, Financial Times, Wall Street Journal, New York Times) were silent. Huffington Post linked to a USA Today story. Reuters featured it only via a Rolfe Winkler commentary. But other than that, NOBODY KNEW THIS HAPPENED.

When stronger banks including Goldman Sachs, Morgan Stanley and American Express repurchased warrants at modest premiums after paying back TARP, most news reports suggested that taxpayers were profiting from the bailout. But those reports didn’t tell the whole story.

For one, they ignored adverse selection, the propensity for the best borrowers to exit the program first, leaving Treasury holding the poorest performing investments. According to the latest data from Treasury, 42 banks have paid back some or all of the cash they got from TARP’s Capital Purchase Program, $70.7 billion in total. But more than 600 banks remain in the CPP program. Together, they still owe $134 billion.

And this excludes other TARP bailout programs that are likely to cost billions. The automotive industry owes TARP $80 billion. And AIG owes TARP $69.8 billion. Much of that isn’t coming back.

It’s also myopic to view TARP in isolation. Take Citigroup. After converting its preferred equity investment to 7.7 billion common shares at $3.25, Treasury is showing a paper profit of $11 billion. Sounds great, right?

But Citigroup’s common equity would long ago have fallen to zero if other bailouts, in particular FDIC’s debt guarantee program, weren’t insulating shareholders from losses.

Citigroup is the only large bank still using the FDIC’s program. Two weeks ago, the bank sold another $5 billion worth of guaranteed debt, bringing its total issued under the program to $49.6 billion.

The bottom line is that the government still stands behind the banking sector. While the cost of this “no more Lehmans” policy may not be known for years, our experience with Fannie Mae and Freddie Mac tells us that such implicit guarantees ultimately prove very expensive. The fact that more banks are falling behind on dividend payments reminds us the tab is growing … FAST.

I’m not trying to incite a riot here. But with the daily example of corporate greed and financial executive bloat that gets shoved down our throats, I’m really beginning to think that the best thing that could happen to this country is a good, old-fashioned torches-and-pitchforks revolt.

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