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Banks rake in fresh equity -- it's a miracle!

By Ward Harkavy in Bailouts, Bankers, Featured, TARP
Wednesday, Jun. 3 2009 @ 10:05AM
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Now that Wall Street bankers have gorged themselves on bailout money, all of a sudden they're able to rake in fresh equity so they can go back to paying one another big bonuses without the government looking over their shoulders. See how easy that was?

What a sweet racket: Take the money and run. Not as funny as Woody Allen's bank robbery, but much more efficient. Who's laughing? Not the taxpayers who bailed out the bankers because they supposedly couldn't rake in fresh equity.

The Financial Times (U.K.) does more than hint at this angle:

US financial groups hoping to repay government aid sold more than $7bn in fresh equity on Tuesday after the authorities told them how much capital they had to raise if they wanted to be in the first wave of lenders to return bailout funds.

JPMorgan Chase, Morgan Stanley and American Express all raised equity they had claimed they did not need, to comply with the new targets set by the Federal Reserve and US Treasury, bankers said.

The bankers are acting so quickly to fling off the government's TARP that neither Capitol Hill nor the Obama crew have even had time to try to put in place new regulations on their activities. (See this ominous — for the banks — SEC proposal that's still only in the talking stage.)

And the bailout was so sweet that the bankers are paying us back dollar for dollar (supposedly). Which means that taxpayers aren't even getting a return on their investment of billions of dollars in Wall Street's banks. That's the way corporate welfare works, son.

Now, for the private investor, these are also sweeter times. If you were a private investor, the manager of a fund standing on the sidelines with billions of equity, it would make sense to wait until the government propped up the banks before giving them money. That way, the banks are healthier investments for you. You could have bailed out the banks, but there was no guarantee of profit in it. Now, thanks to the government's bailout of the banks, there is. Timing is everything. As I said: one sweet racket.

No wonder Jamie Dimon sounds so upbeat. A successful stimulus? He's practically tumescent. As Reuters writes:

Repaying TARP could leave banks "free and clear, like a real American free citizen, corporate citizen, like we were in the past," JPMorgan Chief Executive Jamie Dimon said on a conference call on Monday.

Further explanation from Reuters:

Many banks have complained about the increased government scrutiny and pay restrictions that accompany TARP funds. To free themselves from Washington, banks still need to buy back or get rid of government warrants to buy their shares.

"For any bank that can raise capital and pay off TARP, they should so they can get the government out of their hair," said Joseph Gordon, president of Gordon Asset Management LLC in Durham, North Carolina.

If the banks can borrow, so can I (but at least I give full credit and am gracious about it). Reuters rounds up some of the TARP figures:

More than 600 banks took TARP money, and about 20 have paid it back, Treasury Department data show.

American Express took $3.4 billion, Bank of America $45 billion, Bank of New York Mellon $3 billion, BB&T $3.1 billion, Goldman $10 billion, JPMorgan $25 billion, KeyCorp $2.5 billion, Morgan Stanley $10 billion, State Street $2 billion, SunTrust $4.9 billion and U.S. Bancorp $6.6 billion.