Some Banks Want De-TARP-ing

Zacks Investment Research
updated |

While some institutions continue to ask the government for more bailout money, there are some which want to return what they’ve already received from the bailout. The list includes smaller banks like TCF Financial Corporation (NYSE:TCB) and Signature Bank of New York (NASDAQ:SBNY), as well as bigger ones like Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM) and U.S. Bancorp (NYSE:USB).

These are the banks which were otherwise healthy, but either received the money as the government “encouraged” them to take it or were attracted towards it, due to the (then) very easy terms. However of late, as increasing conditions and greater oversight are being imposed by the administration on the financial institutions receiving the bailout funds, they do not view the government money as attractive anymore.

Also, some institutions do not want to keep the government capital due to the costs involved (dividends on the preferred shares) as they have been resistant to make new loans and earn returns on the money.

Some institutions had earlier applied for and were approved for government aid, but later changed their minds.

Recently, Congress removed the main hurdle that prevented banks from paying back TARP funds (which required them to raise an equivalent amount of new equity capital to replace the government’s capital). Now the banks are allowed to pay back TARP funds after giving just a minimum of 30 days notice to the government.

We think the banks willing to return the money should be allowed to do so without any penalty. Those who are making healthy profits and do not need bailouts should be allowed to use their money in whatever way they wish to, whether it is for sponsoring golf tournaments or for paying bonuses. And there are more than enough institutions waiting with their hands out.

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