"There's a perception in the market that the government is actively picking winners and losers...we wanted it well-known in the market that we're on the list of survivors,"
Now that the government has gotten into the banking business – free markets are being turned upside down. No one wants to be left out – so the tentacles of government continue to spread throughout our banking system.
Everyone is running in fear – and they can’t see the danger.
NOVEMBER 3, 2008
Rescue Cash Lures Thousands of Banks
By ELIZABETH WILLIAMSON
Wall St. Journal
WASHINGTON -- Treasury and banking regulators say as many as 1,800 publicly held institutions could apply for government investments in coming weeks, out of concern that failing to do so could make them losers in a banking sector reshaped by the Treasury's $700 billion rescue plan.
Depending upon conditions still being crafted by Treasury, thousands more private banks could apply for government capital as well, a Treasury spokeswoman said Sunday.
Only days ago, many healthy banks were saying they didn't need taxpayer money under the Troubled Asset Relief Program. These healthy banks said they worried that taking government investments could unfairly tar them as in need of a bailout. In the past week, that perception has been reversed, due in large part to efforts by Treasury, banking lobbyists and legal advisers to sell the TARP.
Henry Paulson, secretary of the Treasury Department, which has been making efforts in the past week to persuade banks to apply for capital infusions from the government as part of the financial-rescue package.
Now institutions across the U.S. worry that if they don't try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.
"There's a perception in the market that the government is actively picking winners and losers...we wanted it well-known in the market that we're on the list of survivors," said Roy Whitehead, chairman, president and CEO of Washington Federal Inc. in Seattle, one of about 20 regional banks approved by Treasury for the program last week.
In the past week, Treasury said, hundreds of publicly traded institutions have applied for the program, or signaled their intent to do so by the Nov. 14 deadline. Responding to lobbying by banking trade groups and their members, Treasury last week extended that deadline for private banks to give them a chance to apply as well.
Under the program, Treasury takes an equity stake in an institution in exchange for an investment of as much as 3% of risk-weighted assets, to a maximum of $25 billion.
Treasury spokeswoman Jennifer Zuccarelli said architects of the Treasury program anticipated the huge interest, and that the $125 billion remaining for the program after the first nine big banks committed to the funds in October will be enough.
But with new types of institutions -- last week, Treasury said insurers would be eligible -- being added almost weekly, some banks and their advisers say they aren't so sure. They are scrambling to commit to the program, worried they will be left out in the cold when the deadline passes.
"It seemed like the consensus in the industry was...go out and get this," said William Marsh, president and chief executive of Farmers National Bank of Emlenton, in Emlenton, Pa. Mr. Marsh said his bank is healthy and viable without government money, but he leans toward taking the money anyway.
Helping banks to understand and apply for the Capital Purchase Program has become a cottage industry in Washington, where firms with lobbyists and lawyers under the same roof have been adding banking clients by the dozens.
In a seafood restaurant in Washington's Georgetown neighborhood Friday, Norman Antin, a partner in Patton Boggs's banking and regulatory group, read a note on his BlackBerry. House Financial Services Chairman Barney Frank, it said, is joining other Democratic leaders in demanding government money be used for lending first, not acquisitions. Banks and their lobbyists, like those at Patton Boggs, oppose such restrictions. They are in constant contact with bank regulators and lawmakers on Capitol Hill, and send dispatches on developments in the ever-changing program to clients in real time.
Patton Boggs partner Kevin Houlihan said the firm's banking and regulatory group now spends half its time on TARP, though the firm declines to break out the revenue created by the sector. Last week, after Treasury re-emphasized that only healthy banks would qualify for the program, five bankers contacted him in a day. He encouraged them all to apply.
"It's cheap capital, cheap insurance and a bonus for the institutions that are participating," he said.
Lawyers at Skadden, Arps, Slate, Meagher & Flom, whose Washington office is located 50 yards from the Treasury, are marrying banks with private investors to improve their financial picture -- and their chances of being approved for TARP.
Some banks are still reluctant to participate in the government program. Last week, Cullen/Frost Bankers Inc. one of Texas' largest banking institutions, issued a news release explaining why it won't apply for government funds. "Cullen/Frost is well capitalized now and for the foreseeable future, with sufficient capital to grow our business and take advantage of acquisition opportunities," Cullen/Frost Chairman and CEO Dick Evans said in the statement.
Such banks are now in the minority, said Hal Reichwald, co-chair of the financial-services group at Manatt, Phelps & Phillips LLP in Los Angeles. About 100 Manatt clients, old and new, are considering TARP capital, and more are in the pipeline.
—Daniel Fitzpatrick contributed to this article.
Write to Elizabeth Williamson at email@example.com