Used taxpayers money (from Paulson) to buy this bank. Why don't we (the taxpayers) own it?

And WTF is PNC doing spending our money to buy anothr bank? Should they not be lending it?

New York Times
JOE NOCERA: So When Will Banks Give Loans?

“Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”

It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual.

Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase.

The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks.

Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.

In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.
(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.

It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.

In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us.

Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.”

Friday delivered the first piece of evidence that this is, indeed, the plan. PNC announced that it was purchasing National City, an acquisition that will be greatly aided by the new tax break, which will allow it to immediately deduct any losses on National City’s books.

As part of the deal, it is also tapping the bailout fund for $7.7 billion, giving the government preferred stock in return. At least some of that $7.7 billion would have gone to NatCity if the government had deemed it worth saving. In other words, the government is giving PNC money that might otherwise have gone to NatCity as a reward for taking over NatCity.

I don’t know about you, but I’m starting to feel as if we’ve been sold a bill of goods.

article

CLEVELAND -- KeyCorp early today said it will get $2.5 billion from the U.S. Treasury by participating in its capital purchase program. Receiving Treasury money is the new stamp of approval the government gives to banks it likes.

The money, in exchange for preferred shares of Key, will allow the Cleveland bank to consider "opportunistic acquisitions," said spokesman William Murschel.

Since last week, analysts have speculated that various mid-sized banks such as Key might buy other banks or sell out.

Chairman and Chief Executive Henry Meyer said in a statement said the money will allow Key to invest in its businesses. The capital will also "significantly fortify Key's balance sheet" and provide the bank will more money to lend.

Key said it received preliminary approval over the weekend.

more at the link

Editorial | October 28

PD - The federally forced sale of Cleveland's National City Bank to a Pittsburgh rival Friday requires urgent congressional hearings to force federal regulators to reveal why they've veered so far from the intent of the $700 billion bailout. Instead of vacuuming up troubled assets, the bailout is being funneled into bank acquisitions.

Such bank sales might make sense if the banks being bought out genuinely were failing. But using the taxpayers' dime to sink wounded banks that might otherwise survive is a far more questionable and inefficient way to rid the system of bad debt. It also runs directly counter to how the Treasury promised to use the money.

Even worse, the opaque manner in which it's being done opens the Treasury to suspicion of favoritism. U.S. Rep. Steven LaTourette of Bainbridge Township suggested Monday that the nation's top bank regulator, Comptroller of the Currency John Dugan, may have influenced the National City deal to help a former client, Pittsburgh's PNC Bank. (A spokesman for the comptrollers' office said via e-mail that the allegation was "absolutely without foundation" and that Dugan also represented National City while in private practice.)

Last week, Treasury's bailout czar, Neel Kashkari, and Federal Deposit Insurance Corp. Chairman Sheila Bair both failed to answer direct questions from senators about the specific criteria they were going to use to pick winners and losers among banks.

Pushing National City into a shotgun sale at far below its book value suggests some deep flaws in those criteria. Instead of injecting new money into the markets, it will inject new pain into Cleveland and may have a long-term impact on the vitality of Midwestern regional banking.

National City's value took a deserved shellacking for its mortgage-lending mistakes and greed. Yet it was rebuilding and working toxic loans off its books at the impressive rate of about a half-billion dollars' worth per month -- without any bailout help.

What's done is done. The National City deal is struck. But before more bank dominos fall, Congress needs urgently to shine light on a bailout that has quickly detoured into very dimly marked terrain.

_{"What we've got here is, failure to communicate"}

Sabrina Eaton | Washington | October 28

PD - Rep. Steven LaTourette wants the Treasury Department and Congress to investigate whether Comptroller of the Currency John Dugan steered $7.7 billion of taxpayer bailout money to his former client PNC so it could buy National City Bank.

LaTourette noted that before being sworn in as the nation's primary banking regulator in August 2005, Dugan represented Pittsburgh-based PNC as an attorney in the Washington law firm Covington and Burling.

"I am very concerned that the comptroller first deprived bailout money to National City Bank and then orchestrated its sale to his former client PNC," LaTourette said in a news statement.

"The officials at PNC have made it very clear that they were only able to buy National City because they got a $7.7 billion handout from the federal government," LaTourette said.

more


_{"What we've got here is, failure to communicate"}

Whether people like Hudson, Klein and others seeing a Wall Street conspiracy behind the bailout or Mish, who thinks it’s the result of stupidity and unintended consequences, the result is the same. Money supposedly directed to soaking up toxic waste at a loss to taxpayers in order to reignite lending is being funneled instead to certain institutions, giving them an advantage in acquiring others that were not so favored, at least creating a perception of cronyism and conflict of interest.

I'm willing to accept that it is some of both. Only Congress can straighten this out now, and they will only do it if there is public outrage over both the bad deal the taxpayers are getting over the soaking up of toxic waste and also the favoritism in disbursing government (taxpayer) funds for mergers and acquisitions.

I thought their problems were bad real estate loans, especially in Florida where they bought two banks. At least if they own the loans they have security rights to the real estate. They would be able to manage the foreclosure process.

But apparently they own "toxic waste", which is a synonym for mortgage securities. These are much more difficult to handle and require mark to market treatment. This is the type of problem that has plagued the "big guys" and forced all those mergers.

It seems a stretch to force National City into a merger unless there were clear evidence its non-performing mortgage loans exceeded 10% of assets. We haven't heard anything about that. Instead what we hear is that a merger is desperately needed and PNC has been selected to be the buyer.

Maybe the Treasury knows what it is doing. Maybe National City is doomed to collapse without a buyer stepping in first. If so, the Treasury can justify its actions. But lacking any firm evidence on these points, you have to wonder if the Treasury hasn't some other objective, or if it is just plain reacting to circumstances as they develop, and usually reacting poorly as a consequence.

So, The Treasury is adding to the national debt to borrow cash and give that cash to a bank, call it A, that needs recapitalization. The newly "recapitalized" bank A takes its free money and buys a bank, call it B, that is not quite healthy thus incurring B's debt and gaining B's assets. So the purpose of the newly created national debt is used to transfer B's debt and assets to A and pay off the stockholders of B? So, lets see if I've got it: the purpose of the bailout is to return the stockholder investment, is it to destabilize Bank A, or is it to just make more national debt for no reason? I'm confused.

Now I suppose what could happen next is that the Treasury will incur some more debt to give more money to an even bigger bank C. Now C buys bank A that already has B's debt and assets thus paying off bank A's equity holders and incurring A and B's debt and assets making C just that much less stable. OK, I got that. Makes about as much sense as anything else. Once the banks are all consolidated we can rest easy; I guess. Boy, you give these bankers some money and its amazing what they can do isn't it?

"You have no respect for excessive authority or obsolete traditions. You're dangerous and depraved, and you ought to be taken outside and shot!" - Joseph Heller