Bewildered By Tim Geithner’s Double-Speak

We highlight Citigroup, Inc. (C), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), U.S. Bancorp (USB) and JPMorgan Chase & Co. (JPM).

Comments made by the U.S. Treasury Secretary Timothy Geithner to the annual meeting of the Independent Community Bankers of America on Wednesday left us a bit bewildered.

If - by Mr. Geithner’s assessment - the U.S.’s Financial System is improving, then why is there a need to extend the expected repayments of Temporary Asset Relief Program (TARP) from the largest U.S. financial institutions to small financial institutions?

We think his comment, “The more vulnerable parts of the nonbank financial system no longer exist … and the financial system has already completed a big part of the painful adjustment away from its excessively leveraged state,” pertains to relatively subjective and sliding scale approach of the “stress test” on the 19 largest U.S. financial institutions (to include, but not be limited to Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), U.S. Bancorp (USB) and JP Morgan Chase (JPM) included the temporary modification of the mark-to-market to permit the individual financial institutions the ability to assess their own internal valuation.

We do not consider this to be in the true spirit of the Financial Accounting Standard Board’s (FASB) mandate to be independent as the legislative branch ordered “by hook or by crook” this entity to come up with a recommendation that the legislative branch wanted - or else.

We would contend the real reasoning for the 19 largest institutions to find alternative funding sources and repay the TARP funds is so they are able to pay their respective managements what they believe is acceptable multi-million-dollar packages.

Per Mr. Geithner’s comments, financial institutions with total assets under $500 million will be able to apply during a six-month window for TARP funds. This would include current participants as well. Why? To ensuring these smaller institutions had sufficient resources to continue making loans even as the economy weakened and credit losses rose.

If, by Mr. Geithner’s assessment, lending has started to improve, then why are foreclosures and credit card defaults still on the rise?

We think that lending has improved, but it is to “slim” from “none.”

To that, we suspect that the vast majority of the lending has been done through mortgage brokers under FHA programs, and not the financial institutions themselves.

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