TARP's Next Victim: Small Banks

• Report this Comment On May 13, 2009, at 4:24 PM, FinancialFellow wrote:

  Lots of featured Fool articles on Banks, Buffett, and Berskshire lately...

  I don't think there's anything wrong with making TARP funds available to small, community banks if those community banks are willing to take the funds with all the strings attached. When big banks take TARP funds it's well known/publicized. When the small community banks take TARP funds will it be that well publicized? Will their ma and pa customers really know or even care? I don't see the negative connotation of accepting TARP funds being as strong with small banks as it is with larger ones.

  I still agree strongly with the value of investing in lending, though. Done correctly it is a very profitable practice. Recently, companies have arisen that allow individuals to enjoy some of the returns that banks and credit card companies routinely see: http://financialfellow.com/2009/04/22/peer-to-peer-lending-o...

• Report this Comment On May 13, 2009, at 4:30 PM, masterN17 wrote:

  Maybe the TARP funds can be used to fulfill the sharp increase in small banks' contributions to the Fed Reserve that was brought on due to the large banks' failures?

• Report this Comment On May 13, 2009, at 4:49 PM, Netteligent09 wrote:

  Treasury Secretary Tim Geithner moving to a right direction. Do not force these banks to take TARP.You can take the horse to water, but you cannot make them drink.

  You have done your part. If these banks fail and file for Bankruptcy, let them be.

• Report this Comment On May 13, 2009, at 5:00 PM, mpendragon wrote:

  This is a better solution than allowing larger banks to acquire smaller troubled ones exacerbating the "too big to fail" problem.

• Report this Comment On May 13, 2009, at 5:48 PM, kyddfool wrote:

  i like you Morgan Housel as your articles for TMF seem to be the best ( on understanding what is really going on ) I don't trust the mentality of government staff who want to payout to those who don't need and don't ask....DO YOU??

• Report this Comment On May 13, 2009, at 5:54 PM, smaulcap wrote:

  Victims?

  t's a pity how the TARP recipients were inconvenienced by all that tax payer money. Jamie Dimon calls it a scarlet letter. What he won't talk about is all the money he, and the banks made using TARP money. In fact, Jamie Dimon is making money by the boat load assisting other banks who are returning TARP money. Jamie Dimon and JPM are making loads of green on both ends. Interesting article at CNN Money. The Fortune article is titled "The Rich Get Richer On Wall Street." In fact, JPM and a couple of other banks have raked in about 700 Million in about just the past week. And, there's more on the horizon as they co-manage and underwrite the stock offerings of the banks who are raising capital to repay TARP funds.

  From Fortune........

  "And this urge to purge TARP funds is translating into rich underwriting fees for three big U.S. brokerage firms -- Goldman Sachs, Morgan Stanley, and the J.P. Morgan unit of JPMorgan Chase that are taking the lead in managing bank capital-raising efforts."

  "Goldman and Morgan served as co-managing underwriters of a $2.5 billion stock offer this week at U.S. Bancorp and a $1.2 billion stock offering at Bank of New York Mellon. They were joined by J.P. Morgan in co-managing a $1.5 billion stock offer for BB&T, which like U.S. Bancorp and Bank of New York Mellon passed the stress test but wants to repay TARP soon."

  I have nothing against JPM or GS. In fact, I love 'em. I have done well, real well, the past couple of months trading JPM and GS. However, I shed no tears for JPM, GS, or any other TARP recipient. If TARP recipients are "victims" as the author here calls them, where do I sign up to be a vitim? I can use the money.

  Scarlet letter.......Or, blessing in disguise?

• Report this Comment On May 13, 2009, at 6:03 PM, Dannysea wrote:

  All these foreclosures are being demanded to slow down, and the banks continue to hold the bag? We are seeing in the foreclosure business where people used to not make a payment for 11-14 months, once the bank took possession. And now it is the norm for banks to be out 20-28 months before they are allowed to foreclose on the property.

  Now add in the TARP program where banks have to forgive a large part of their asset, leave the people stay, start over on loan, and the same people never make the new revised payment.

  Yes, this is not isolated and is what is happening now.

• Report this Comment On May 13, 2009, at 6:27 PM, toddsw wrote:

  Let me add something to the discussion that I am sure you will not hear about in the media, after all, everything this administration does is "good". I deal with community banks in the southeast. They don't need, for the most part, federal $$$'s. Now, there is one particular bank that requires assistance, but only because the regulators are classifying an unreasonable % of their loan portfolio as high risk, thus they have less cash available to loan, thus they might need an infusion of federal $$$'s. Now, the funniest (or scariest if you are an investor in this bank) is that these "high risk" loans are not in default and are up to date. Sure, the loan vs. value of the collateral is off (since housing prices tanked, duh!) but the thing is, these loans for the most part are not at risk of default. It almost seems like they want to force this bank to need a bailout. Why I have no idea, except there is a large insurance company that has expressed interest in purchasing this bank (ironically with the goal of getting their hands on tarp funds, they see it as low cost capital) but they have been rebuffed this far. I's love if some national news organization would dig into why the gov't is doing the opposite of helping in this case.

• Report this Comment On May 13, 2009, at 7:02 PM, steveherb wrote:

  Simple... A small dog and big dog recieve the same amout of food. As soon as the big dog is finished he'll reume to gobble up the little dogs food. As soon as the little dog sniffs and bark, the big dog will growl forcing the little dog to back off. As soon as both bowls are empty the big banker (whoops) dog winds up with the full stomach.

  Moral of the story... The little bank is better off passing up the funds because the big dog will already have his eyes on your food.

• Report this Comment On May 13, 2009, at 7:13 PM, brianc410 wrote:

  wow, no pitch to subscribe to a service at the end of this article!

• Report this Comment On May 13, 2009, at 7:51 PM, xetn wrote:

  TARP is stupid and should not exist for anyone, for any reason.

• Report this Comment On May 13, 2009, at 8:30 PM, 7footmoose wrote:

  to Tarp or not to Tarp that is the question, the community banks serve a very valuable purpose and deserve to be treated equally with the large banks, the thought that the community banks do not have problems of their own is fallacious, they by definition are more likely to have larger concentrations of real estate dependent loans, these loans fill a valuable place in the community and they are more often than not too small for the large banks to be interested, also these banks tend to be more likely moved to make loans which are riskier because of the banks place in the fabric of the community and the relationship of the Board of Directors in making or influencing credit decisions and the Board's place in the community

• Report this Comment On May 13, 2009, at 9:17 PM, FoolishRM wrote:

  Was that article was written by an adult? He makes it sound as though small banks want and deserve bailouts. The vast majority are just fine and they do not want federal money (with strings) shoved down their collective throats. Be wary of any corporate interests that get in bed with this federal version of Al Capone's Chicago mob. Look at GE's CEO and read your history books. Ever hear of fascism?

• Report this Comment On May 13, 2009, at 9:37 PM, Chescat5 wrote:

  Morgan, what do you know about banking? What do you know about the advantages that Government policies over the last year have given to large banks--the ones who created the problems? What do you know about what small banks--who did not create the problems--contribute to their communities?

  You should be ashamed of yourself!

  Martin Lowy

• Report this Comment On May 14, 2009, at 2:36 PM, peters46 wrote:

  mpendragon, excellent comment. Morgan - the vote on executive pay packages is advisory only, meaning the board can ignore shareholders' opinion. And when this was mandated, the large banks and other companies got rid of the binding votes on executive bonuses, etc. And how are small banks defined? I thought regional banks like STSA were small, but they have already digested TARP funds (months ago).

• Report this Comment On May 14, 2009, at 2:40 PM, CampP wrote:

  Preventing the "need" for the FDIC to swoop in and take over banks is a good investment. FDIC.gov is terrible at selling the loan portfolios on their web site, sometimes getting 11 cents on the $. These are not even the CMOs and other paper that wall street invented, but real loans.

  FDIC needs to sell the loans one-by-one and make them available to the US investing public. This would bring much more return to the taxpayer.

• Report this Comment On May 14, 2009, at 2:47 PM, careylrowland wrote:

  It's a good sign that banks are apparently wanting to rid themselves of the tarbaby TARP. Maybe there is hope for free enterprise in this country yet. I hope the situation is not as bad as FoolishRM suggests when using the word "fascism."

  Mr. Geithner seems to be enacting a "bailout" of a different kind--the one in which a cartoon character attempts to plug leaks and toss water from the bottom of a boat as one gushing leak after another threatens to overwhelm the vessel's seaworthiness. It makes sense in a desperate sort of way.

  Give him a gold medal for effort; he means well. On the other hand, maybe we'd all be better off if he'd just relax and let the ship sink. Then the small and mid-range dogs might just pick up the scraps from the big dogs' carnage, without becoming "victims" of the pusher-man who's hawking financial crack down on the corner of Wall and Fed.

  When I started reading your article, Morgan, I was impressed that the Treasury Secretary was willing to recycle those returned funds from the big dogs, and toss them to the littler ones (the ones were never rabid with derivative fever.) But then I read this sentence: "But it should not be viewed as a tool to boost banks whose failure doesn't threaten systemic financial collapse."

  That's a very good point. Let's just keep the regional and main street banks away from the TARPbaby, so they don't get stuck with lethargic governmental addiction, and we, the taxpaying public, don't get stuck with irretrievable government junk.

  Banks of the United States, get out while you still can! Our free market system is depending on you to do the right thing.

  Carey Rowland, author of <a href="http://www.careyrowland.com">Glass half-Full</a>

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