Wells Fargo Discovers High Cost Of Government Help
March 16 (Bloomberg) — Wells Fargo & Co. Chairman Richard Kovacevich criticized the U.S. for retroactively adding curbs to the Troubled Asset Relief Program, which he said forced the bank to cut its dividend, and called the administration’s plan for stress-testing banks “asinine.”
When the U.S. Treasury persuaded the nation’s nine biggest banks to accept capital investments in October, it signaled the whole industry was weak, Kovacevich, 65, said in a March 13 speech at Stanford University in California. Even though Wells Fargo didn’t want the money, it must comply with the same rules that the government placed on banks that did need it, he said.
Kovacevich joins a growing list of bankers who are chafing at restrictions imposed by the TARP program, which affect lending, foreclosures, pay and perks. Lenders including Bank of America Corp., U.S. Bancorp and Goldman
Kovacevich said the government is still making mistakes as it tries to save the industry.
“We do stress tests all the time on all of our portfolios,” Kovacevich said. “We share those stress tests with our regulators. It is absolutely asinine that somebody would announce we’re going to do stress tests for banks and we’ll give you the answer in 12 weeks.”
Regulate Yes – Operate No
Wells Fargo Chief Kovacevich is discovering the truth of Ronald Regan’s quip when he said the nine most terrifying words in the English language are “I’m from the government and I’m here to help”. I applaud the head of Wells Fargo for pushing back and rejecting the heavy hand of the government in the banking industry. Those banks that have run their operations properly should reject or return bailout funds and run their operations free of the strangulating hand of government control. The government should regulate banks – not operate them. The government failed at regulating banks in the past – what are the odds that the government could run a bank properly?
Many other banks are also pushing back and returning TARP money that they say was forced upon them. Ironically, the TARP money that certain banks were required to accept wound up causing more harm than good. The banks that accepted TARP funds were viewed as tainted by the public. The interest rate that the government was charging the banks was so high (up to 9%) that the money could not be profitably lent out without taking undue risk.
TARP was passed by Congress last year after the Fed, the Treasury and the President employed scare tactics, predicting financial Armageddon unless the $700 billion bailout was approved. Now we learn that much of the TARP money was forced upon banks that did not need the money and now wish to return it. This entire episode leads us to wonder exactly how poor the government’s comprehension of the banking problem was to begin with. Any future scare tactics employed by the government to borrow more trillions to “save us” should be viewed with great skepticism.
A growing number of healthy bank chains across the country are bailing out of the $700-billion federal banking bailout program, saying it has tarnished the reputation of banks that took the money and tangled them in unwieldy regulations.
“The TARP money is tainted and we don’t want it,” said Jason Korstange, a spokesman for Minnesota-based TCF Financial Corp., which received $361 million and announced this month that it wanted to pay it back. “The perception is that any bank that took this money is weak. Well, that isn’t our case. We were asked to take this money.”
The bank issued a toughly worded statement earlier this year, saying that the money had put the financially strong banking chain at a “competitive disadvantage” and that the bank now believed it was “in the best interest of shareholders” to return it.
For Rothenberg, the banker in Century City, the prospect of unlimited government intervention was too much.
Only a few banks formally have told the department they would return the money early, although others have signaled they intend to follow suit, a Treasury spokesman said.
So far, the banks are waiting to hear how they are supposed to return the money.
Government Cure Was Worse Than The Disease
The banks have learned that any free enterprise operation that gets entangled with the suffocating idiocy of government bureaucracy will neither live long nor prosper. The government cure turned out to be worse than the disease. Now let’s see how long it takes the government to figure out the rules that must be followed before the banks can return the taxpayer money that they don’t need or want.