Sending Money to the Wrong Banks

Today’s featured MSM column is this Bloomberg discussion as to whether or not Treasury is sloshing the cash to banks that don’t really need it.

"The U.S. government’s $160 billion handout to banks from Niagara Falls to Beverly Hills is going mostly to lenders that need it least, putting weaker rivals at risk of being shut down or taken over, analysts say.

"This has the unintended effect of making the strong stronger and the weak weaker,” said Gray Medlin, founder of Carson Medlin Co., a Raleigh, North Carolina, investment bank focused on banking deals. "Banks that are getting bad exams and are under intense pressure from regulators won’t be successful in applying.”

The government buying spree has so far targeted two dozen regional lenders. One, PNC Financial Services Group Inc., immediately bought a competitor, National City Corp. Another, Saigon National Bank, had almost four times the minimum level of capital before selling a $1.2 million stake.

Treasury Secretary Henry Paulson is doling out cash to recapitalize lenders and jump-start takeovers. Besides PNC and Saigon National, regional lenders that have accepted government stakes in exchange for cash include SunTrust Banks Inc., Capital One Financial Corp. and KeyCorp. They also include City National Corp., in Beverly Hills, and First Niagara Financial Group Inc., in upstate New York."

As we have previously discussed, its time for triage — close the bad banks, recapitalize the good banks, and move forward.

The entire article is worth reading  . . .


How to Repair What Ails Us (October 13, 2008)

U.S. Treasury Shuns Banks That Need Cash Most in Buying Spree
David Mildenberg and Linda Shen
Bloomberg, October 29 2008

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