It's
always interesting to read what banks write about their participation in the
Troubled Asset Relief Program. Usually, recipients explain why they took the
money, or say that they're waiting for more details to decide exactly what to do about those pesky compensation issues.
Bill Grant, First United's chairman and chief executive, said in his presentation, "It is important to note that much of this situation was caused by non-bank lenders, such as Countrywide. For the most part, it was not the 8,400 community banks throughout the USA."
Grant then took another swipe at the outside forces that he said exacerbated the problems (slide 38): "I want to clearly emphasize again that much of the cause of the severity of this recession happened far away from most towns and cities of the country, and one needs to look to Wall Street and Washington for the reasons this one has been so tough."
Grant complained that there had been a "tremendous amount of misinformation" about both TARP and the Capital Purchase Program (CPP).
The banks were not at the table when the programs were developed, he said. And moreover, "the CPP program was only to be made available to strong banks." Grant said that while the big banks that got the first wave of government aid were told that they would have to accept, banks like his were "encouraged" to take it. He then said:
Not only will the Treasury get its money back, but it is going to earn 5 percent on its investment. Most projections indicate the government will make a $40-plus billion profit from CPP. And, by the way, there has not been a single default in CPP payments."
Grant exhorted the bank's shareholders to spread the word and correct the "misperception of banks" (slide 53):
"In closing, I would like to enlist your help. You, as our shareholder and owner, obviously have a stake in our future success. One of the most serious challenges we face today is the tremendous amount of misinformation spread by both the media, and Congress. At one of our recent American Bankers Association meetings, its president, Ed Yingling, challenged us to help dispel four misperceptions of banks. I would like to briefly review them, and ask that you to keep them in mind, and bring them up in your conversations with friends and neighbors.
1. Traditional Banks -- We are not the problem, we are the solution. Most of the troubles today can be traced to non-banks, and a few money center banks around Wall Street. The 8,400 community banks continue to be strong and serve their communities -- just like First United.
2. Banks are Lending -- Much has been said about banks not lending. Nothing could be further from the truth. Lending nationally increased last year -- even in the face of a recession. As noted earlier, First United increased its lendings by 8 percent in 2008.
3. Banks are not Bankrupt -- While it is true that special funding facilities have been provided a few, very large banks, over 98 percent of America's banks are well capitalized. And, yes, it is true that 20-plus banks have gone under this year, but no depositor has ever lost a dime on insured deposits.
4. CPP is not a Bailout -- As noted in my comments earlier, much has been made of the "bankers' bailout." This simply is not true. The Capital Purchase Program was born out of the Troubled Asset Relief Program and was specifically designed for strong banks. It is money that is in the form of a preferred stock investment, and must be paid back with respectable rate of interest.
While it's fair to acknowledge that some banks are trying
to get it right and pay back the money as quickly as they can, hopefully
bankers also understand -- given recent headlines about some recipients who've
spent public funds in a lavish fashion -- why taxpayers are concerned. The
public has a right to watch over its money and see what recipients are doing
with it.
published May 15, 2009, 0 Comments
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