Showtime! Showdown Seen Between Banks and Regulators

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Met het schrappen van de 'Mark-to-Market' regel, het doorzetten van de
stresstesten én het 'geheim' verklaren van de resultaten hiervan is het
scenario gezet voor een STEALTH-aktie om de banken in de USA weer gezond
te krijgen.
Uit het gezicht van de (redelijk wantrouwig geworden) kiezers ;)

De banken hebben meer moeite met maximum salaris&bonus regels, de
aanstaande verkoop van onverhandelbare waardepapieren tegen een koers die
bepaald gaat worden door biedingen op een beperkte markt en zien de
uitkomsten van de stresstesten met groot wantrouwen tegemoet.
Ze verwachten harde maatregelen, zoals gedwongen verkoop van hun handel.

Dan nog liever terugbetalen van de ontvangen hulpgelden, maar dit wordt
niet geaccepteerd door de regulators.

Groet / Cees

http://www.nytimes.com/2009/04/11/business/economy/11bank.html?_r=1&partner=rss&emc=rss&pagewanted=print

April 11, 2009
Showdown Seen Between Banks and Regulators
By STEPHEN LABATON and EDMUND L. ANDREWS

WASHINGTON — As the Obama administration completes its examinations of the
nation’s largest banks, industry executives are bracing for fights with
the government over repayment of bailout money and forced sales of bad
mortgages.

President Obama emerged from a meeting with his senior economic advisers
on Friday to say “what you’re starting to see is glimmers of hope across
the economy.” But there were also signs of growing tensions between the
White House and the nation’s banks over the next phase of the financial
rescue.

Some of the healthier banks want to pay back their bailout loans to avoid
executive pay and other restrictions that come with the money. But the
banks are balking at the hefty premium they agreed to pay when they took
the money.

Jamie Dimon, the chief executive of JPMorgan Chase, and two other
executives of large banks raised the issue with Mr. Obama and the Treasury
secretary, Timothy F. Geithner, at a meeting two weeks ago.

“This is a source of considerable consternation,” said Camden R. Fine, who
attended the White House meeting as president of the Independent Community
Bankers, a trade group of 5,000 mostly smaller institutions, many of which
are complaining about the repayment requirements.

Meanwhile, the Obama administration wants weaker banks to move more
quickly to relieve their balance sheets of the toxic assets, the home
loans and mortgage bonds that nobody wants to buy right now. But the banks
are resisting because they would have to book big losses.

Finally, there is increasing anxiety in the industry that the
administration could use the stress tests of the 19 biggest banks, due to
be completed in the next three weeks, to insist on management changes,
just as it did with General Motors when officials forced the resignation
of its chief executive after examining that company’s books.

Senior officials, recognizing that the next few weeks could prove pivotal
for both the industry and the bailout effort, are moving ahead with major
plans.

“You will be seeing additional actions by the administration,” Mr. Obama
said after the meeting Friday, when the officials discussed the bank
stress tests and the new $500 billion to $1 trillion plan that will use
public subsidies to encourage private investors to buy mortgage assets.

Attending the session were Mr. Geithner; Sheila C. Bair, the head of the
Federal Deposit Insurance Corporation; Lawrence H. Summers, the chairman
of the National Economic Council; and other top regulators.

The tension between the industry and the administration is rising as the
government’s bailout fund is dwindling, putting the administration in a
bind. It is all but certain to need to seek more money from Congress,
which wants to see results from existing programs first.

The fund is down to its final $134 billion, according to Treasury
officials, and is expected to face new requests for money in the coming
weeks to aid tottering banks, the auto industry and possibly insurance
companies.

“Between now and Memorial Day we’re going to know a whole lot more about
the degree of trouble the banks are in,” said Senator Charles E. Schumer,
a New York Democrat who is vice chairman of the Joint Economic Committee.
“At the same time, we will begin to have a good initial reading as to how
well the administration’s programs are working.”

This month, the nation’s largest banks began announcing their latest
quarterly earnings. Some, like Wells Fargo, have released results early to
trumpet their profitable first quarter — and possibly to give them
leverage in coming negotiations with their regulator.

The immediate concern for the administration is how to get the weaker
banks to relieve their books of deteriorating mortgages and
mortgage-backed securities.

Industry analysts estimate that United States banks alone have more than
$1 trillion of such mortgages on their books but have recognized only a
small share of the likely losses.

Economists at Goldman Sachs estimated recently that banks were valuing
their mortgages at about 91 cents on the dollar, far more than investors
are willing to pay for them.

Even though the Treasury Department plans to subsidize the purchases of
toxic assets by giving buyers low-cost loans to cover most of their
upfront cost, a growing number of analysts warn that many if not most
banks will remain reluctant to sell.

“The gap is still very wide,” said Frank Pallotta, a former mortgage
trader at Morgan Stanley, now a consultant to institutional investors. “If
every bank was forced to sell at the market-clearing price, you’d have
only five banks left in the market.”

The stress tests of the banks are aimed at estimating how much each bank
would lose if the economic downturn proved even deeper than currently
expected.

Government officials do not plan to disclose the results for individual
banks but may reveal broad results for the entire industry at the end of
the month.

If the test indicates that the losses would leave a bank with too little
capital, the bank will have six months to either raise extra money from
private investors or get money from the government. Executives at some
banks are worried that regulators will start demanding changes in
management and strategy, possibly forcing them to merge with stronger
institutions.

Treasury officials said they understood that banks had valid reasons for
placing higher values on their mortgages than investors, and said they
were hoping to avoid major conflicts.

Facing a host of government restrictions — from how much they pay
executives to how many foreign citizens they employ — some small banks
have returned the bailout money, and some larger ones, including Goldman
Sachs, Wells Fargo and Northern Trust, have said they want to do so as
quickly as possible.

On Friday, Sun Bancorp of Vineland, N.J., became the sixth bank to exit
the program, returning $89.3 million just three months after it received
its loan.

Regulators are reluctant to approve the early repayments until banks can
show that they have the capital to withstand further erosion in the
economy and will not curtail their lending.

Both large and small banks have pressed the Obama administration to make
it less costly for them to exit the bailout program by waiving the right
to exercise stock warrants the banks had to grant the government in
exchange for the loans. At a meeting last month, the chiefs of three of
the largest banks separately asked Mr. Obama to direct the Treasury not to
exercise the warrants, Mr. Fine said.

Douglas Leech, the founder and chief executive of Centra Bank, a small
West Virginia bank that participated in the capital assistance program but
returned the money after the government imposed new conditions, said he
complained strongly about the Treasury Department’s decision to demand
repayment of the warrants. That effectively raised the interest rate he
paid on a $15 million loan to an annual rate of about 60 percent, he said.

“What they did is wrong and fundamentally un-American,” he said. “Even
though the government told us to take this money to increase our lending,
the extra charge meant we had less money to lend. It was the equivalent of
a penalty for early withdrawal.”

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