Big banks rebuff govt. micro-management

March 11, 2009 6:43:35 PM PDT
Conflict is growing in Washington over how much control government should have over banks that take bailout funds. San Francisco-based Wells Fargo, says it would like to return the money soon.

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The government gave out $300 billion to banks so they could focus on lending at a time when everyone was worried about the bad loans on their books. However, a number of banks, including Wells Fargo, would like to return the money. The reason is simple.

Congress is demanding accountability and change in how they operate. For example, they want to put a lid on executive compensation.

"The healthier banks need the subsidization less so they don't want to incur the cost of the government's oversight, so they'll give the money back. And the less healthy banks need it. So what's going to happen is the government is going to be left with the worst banks," says Professor Jonathan Berk, Ph.D., from Stanford's Graduate School of Business.

Assistant Treasury Secretary Neel Kashkari warned Congress on Wednesday not to micro-manage the banks.

Wells Fargo accepted $25 billion last fall. It says it taken steps to strengthen its balance sheet, saving $5 billion alone by slashing its dividend 85-percent.

"These actions will help us repay the government's investment at the earliest practical date," says Wells Fargo President and CEO John Stumpf.

Wells Fargo did $22 billion in new loan activity in the last quarter of 2008 and has originated $59 billion in loans in the first two months of this year.

However, investment advisor Ken Winans says paying back Troubled Assets Relief Program or TARP money may not stop efforts to micro-manage.

"We're in a regulatory world today. Whether they like it or not, with or without bailout money, they're going to be looking at additional scrutiny," said Winans.

Bank stocks have been hit hard, even as they show a desire to return the money. Wells Fargo has traded at almost $45 in the past year. Wednesday, it was just shy of $12.

"At the end of the day, people are still scared about what is the depth of this mortgage exposure within their individual banks, and it's interesting that we're talking about the money center banks because I'm hearing more and more about people looking at the smaller community style banks that they feel do not have the same exposure issues," says Winans.

There still is one major hurdle that banks would have to face if they want to give their TARP funds back and that is the agreement that they have to hold onto the money for a three-year period. Congressional action would have to be taken.

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