Bankers are divided over the efficacy of the Treasury Department's efforts to stabilize the financial system and pessimistic on the agency's ability to jump-start the economy.
Strong opinions abound nearly six months after the government began to infuse capital into the system. Some bankers say the earliest efforts are working, but others strongly disagree, according to a survey of 261 executives conducted by American Banker in partnership with Greenwich Associates LLC of Stamford, Conn.
Half the bankers believe the Troubled Asset Relief Program has been moderately or somewhat successful in providing stability, but nearly 35% of the respondents said they were convinced it has not lived up to its billing.
Bankers were more in unison when asked if the program had boosted the U.S. economy; 69% of respondents said it has not done so. The results were similar regardless of whether the banker worked at a big or small bank.
The timing of the survey likely proved relevant. The questionnaire was administered in late February and early March and was largely reflective of the Treasury's Capital Purchase Program, rather than many of the next-stage initiatives that have taken shape in recent weeks.
That was evident in the bankers' wish list for added government intervention. A large number of respondents said they want the Treasury to revisit the original Tarp mission of creating a market to purge toxic assets, and others wanted the elimination of mark-to-market accounting.
(The Treasury finally came out with the Public-Private Investment Program on March 23, and the Financial Accounting Standards Board has said it will revisit mark-to-market rules this month.)
Observers agreed that the survey results reflect an industry that is still struggling with the focus and results of Tarp while coping with their own muted results and the continued hostility from politicians and consumer advocacy groups. The lengthy detour from the program's original intent only served to confuse bankers, observers said.
"I can understand why it has been so divisive, even within the banking industry," said Gary Schlossberg, the senior economist at Wells Fargo & Co.'s Wells Capital Management. "The goals were really splintered as the original plan broke down into several plan B components. We bolstered many institutions, but we never really dealt with the problem. It provided breathing room, but not a solution."
Brian J. Fabbri, the chief economist for North America at BNP Paribas SA, agreed with that assessment.
"Tarp certainly has helped, but it didn't finish the job" of addressing industry and economic issues, Fabbri said in an interview. "Is it sufficient by itself to solve the problems? No, but it has been a necessary ingredient."
In their anonymous comments on the initial phase of Tarp, bankers provided insight into their thinking.
"It confirmed that some of the better banks as judged by the regulators are able to make loans and get credit flowing in this country," a proponent said. "In that regard, it has been helpful to smaller businesses in many communities to obtain needed financing and to have improved confidence to expand their business receivables and inventories."
Another banker commented, "It prevented some large banks from failing, which would have created a shock wave within the financial community, as well as the economy as a whole."
Tarp detractors were much more scathing in their rebukes of the capital initiative, expressing a steadfast belief that the program quickly morphed from one designed to prop up the healthiest banks to one where funds were distributed more broadly and promoted in a way that turned public sentiment sharply against the industry.
"As many feared, the new administration is seeking to change the rules," said a respondent, who had participated in a conference call with Treasury officials hosted by the American Bankers Association.
"The burden of government interference may well collapse the program," the banker said. "I was told it was my patriotic duty to take the funds. Now the healthy banks that are trying to be part of the recovery are vilified."
Another banker compared the sale of preferred stock to the Treasury to receiving a "scarlet letter," saying that public opinion toward the bank and the entire industry took a "180-degree directional shift" when the government broadened its reach by allocating funds to less-healthy institutions.
Such sentiment has been reflected in the growing number of companies that are preparing to repay the government's capital infusions. TCF Financial Corp. in Wayzata, Minn., Shore Bancorp in Easton, Md., and Sun Bancorp Inc. in Vineland, N.J., are among those that have already filed plans with regulators to return the funds, largely because of angst over how Congress is trying to control how the industry handles everything from compensation and dividends to marketing and corporate travel.
Kelly King, the chief executive of BB&T Corp., has cited many of the reasons in his critique of the program, along with what he sees as the uneven distribution of funds. Calling the Capital Purchase Program "offensive and destructive," he said at the Winston-Salem, N.C., company's February investor day that "good institutions should try to exit … as soon as possible."
On Tuesday, Iberiabank Corp. in Lafayette, La., Old National Bancorp in Evansville, Ind., Signature Bank in New York, and Bank of Marin Bancorp in Novato, Calif., said they had returned the government's capital.
Kenneth D. Lewis, the chairman, president and CEO of Bank of America Corp., said last week that his $2.5 trillion-asset Charlotte company could start repaying its $45 billion of capital this month, pending the results of stress testing. Richard Davis, the chairman and CEO at U.S. Bancorp, has set a similar timetable, calling the capital initiative "a lousy program" that has constrained his Minneapolis company since its $6.6 billion infusion.
That's not to say bankers oppose transparency. In fact, the survey found significant interest in providing the government and the general public with specific data on what bankers are doing with CPP funds, addressing a long-standing point of contention for consumer advocates, who claim the industry has not been open enough. Nearly three-quarters of bankers said the industry should be required to provide specifics.
A number of big banking companies have started making public data they have been submitting to the Treasury. Wells Fargo, JPMorgan Chase & Co. and Bank of America Corp. have disclosed their overall lending totals for January. Last week Fifth Third Bancorp unveiled a page on its corporate Web site that breaks down its origination activity by mortgages, home equity, auto loans and commercial lending.
The survey found significant support for the premise behind the Public-Private Investment Program. Half of all bankers at large institutions, which stand to benefit greatly from shedding securities they have already written down, said they wanted a market for selling bad assets. Roughly a quarter of those at small banks expressed a desire for such an effort.
Though it was not a specific selection on the survey, bankers repeatedly expressed a desire for the end of mark-to-market accounting.
"Get the accountants out of control," a respondent said. "Get rid of fair market value accounting as a book entry and make it a footnote entry only."
Another respondent suggested allowing banks to capitalize their losses and accrete them over a period of 10-20 years. "This would force shareholders to shoulder the burden and eliminate the need for taxpayer assistance."
Dmitri B. Papadimitriou, the president of the Jerome Levy Economics Institute at Bard College, agreed that accounting rules must change.
"Mark to market has to go," Papadimitriou said in an interview. "It would give bankers a lot of flexibility to pursue" the sale of toxic assets.
Bankers back a market for selling those assets, he said, but it is unclear how participatory they might be.
"There is still a question of what assets will move forward in the auction process," Papadimitriou said. "It will be interesting to see how successful the banks are that participate in the program. Right now it is too early to tell."
Continued uncertainty abounds, with many CEOs reluctant to back the PPIP until all the facts are known. Observers said that until everything settles out around the implementation of Tarp, bankers are likely to remain divided on the program's overall efficacy.
"All of these programs have been coming fast and furious, and none of the results are showing yet," said John A. Kanas, a former bank CEO and now a senior adviser for W.L. Ross & Co. "There is so much uncertainty built into the market to the point that people are quite confused as to how all of these things are going to play out."
