An Unlikely Discussion on Common Sense and Roses

Executives, politicians, economists, investors, and the average Joe and Jane on the street may never look at Troubled Asset Relief Program investments in exactly the same way.

Were banks "patriotic" to take the government aid?  Should the loans crimp executives' compensation and their style of entertaining, assuming they repay the money with interest to the Treasury?  (The example of Northern Trust Corp., which took a $1.6 billion in aid, comes to mind; the company was excoriated after it hosted lavish golf tournaments and parties -- even hiring Sheryl Crow for one event.) Has TARP become the 21st Century equiveltn of a "scarlet letter,'' as Bank of Granite corp.'s Scott Anderson opined?

Well, here's another point of view to add to the dialogue, and it comes from John A. Celentano, Jr. and Walter Celuch, executives at New Jersey-based Clifton Savings Bancorp, Inc., the holding company for Clifton Savings Bank.

On June 12, 2009, Clifton filed its annual report with the Securities and Exchange Commission, and it made some very direct statements about competitors that took government aid.  To be clear (although that will be obvious in a moment), Clifton did not sell shares to the government through TARP's Capital Purchase Program.

Clifton prides itself on its "common sense" and reports a number of laudable results:  an increase in net income of almost 117 percent, a steady price for its stock, the payment of 20 consecutive quarterly dividends, and just one foreclosure - "on a small, very well-secured modest home" - out of 2,373 loans made.  [The full letter - Exhibit 13 to the annual report - is available here.]

Clifton's executives note that:  "Unlike our national and international competitors, we don't have thousands of employees or rely on arcane computer models. Instead, we have just ten offices and a staff of slightly more than 100. And yet, while most of these major banks foundered, we made money during the past fiscal year. How? By exercising good risk management, doing business with creditworthy customers and using common sense."

Then the executives turn their sights on competitors that did take TARP funds:

"Competitors who risked their depositors' monies by accepting troubled assets are now rationalizing their poor financials by blaming them on the economy, the global financial crisis, tax rates and the national financial slump.  They are forced to accept government bailout money to dress up those troubled assets on their balance sheets. Rather than admit that they accepted bailout money under the 'Troubled Asset Relief Program,' they call it a Capital Purchase Program.  Our common sense tells us that a rose by any other name is still a rose and their troubled assets are still troubled.

Our profitable loans remain profitable. That's why we didn't need the government's bailout money and said 'No thanks' to the offer."

Harsh?  Yes.  But it's pretty hard to argue with Clifton's financial performance.  It's too bad that their brand of "common sense" isn't a bit more... well, common.