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Trust still matters


Trust is one of those touchy-feely words that gets thrown around a lot, but whose true value isn’t felt until it’s lost.

The Congressional Oversight Panel’s latest report on the troubled assets still embedded in bank balance sheets reminds us that one of the first casualties of the credit crisis, trust, is still up for grabs.

Those toxic assets that started the whole mess, culminating in last fall’s financial market meltdown, are still there — they’re just harder to see.

This is so even after the government has pumped trillions of dollars into the financial system, including the $700 billion of funds initially targeted at removing those assets, but redeployed to vulnerable financial institutions themselves.

Goldman needs to lose Gekko image

So, Goldman Sachs has a “Gordon Gekko feel to it” according to an executive at Brand Asset Consulting. In a survey of leading U.S. brands, the market research firm has reached the conclusion that the investment bank’s stature has been diminished in the eyes of the public by recent events.

Somehow, this fails to do justice to the emotions the name Goldman <GS.N> stirs in the breast of the average American.

from Rolfe Winkler:

Talking warrants on TV

Recorded a segment for Reuters Insider today, the TV product in Beta here at 3 Times Square.

One big correction: I say the DIF never charged banks for the insurance it provided.  What I meant to say was that they hadn't charged banks anything over the last ten years.  What I should have said is that, in effect, they haven't really charged anything because the DIF is negligible relative to the deposits it insures.

Goldman, what about the FDIC-backed debt

Goldman Sachs is trumpeting the fact it just paid the federal government $1.1 billion to buyback the warrants it gave the Treasury Dept. as part of last fall’s baillout package. But Goldman still is benefiting from the government’s largess by sitting on some $22 billion in FDIC-guaranteed debt it sold this past winter.

Goldman can’t say it’s truly free of government assistance until it retires this $22 billion in long-term debt that it sold to investors. Last week I argued that Goldman, instead of setting aside money for record bonuses, should use some of that cash to retire these FDIC-backed notes early.

Apocalypse Then

How bad was the financial crisis in the bleak depths of September?

At today’s House Oversight subcommittee hearing on the Bank of America/Merrill Lynch merger, Representative Paul Kanjorski, the Pennsylvania Democrat, tried to coax Hank Paulson, the former Treasury secretary, to describe the potential doom and gloom policy makers were contemplating as the TARP proposal was being drafted.

Paulson was reluctant to be drawn out on what he and others had feared, but said that “when a financial system breaks down… the number of unemployment we were looking at was much greater than the number we are looking at now.”

Beware the Tarp repayments

Shares of Goldman Sachs and Morgan Stanley are trading like the financial crisis never happened. In fact, Goldman’ stock is trading at  price that’s right around where it was the Friday before Lehman Brothers filed for bankruptcy last September.

But it looks the rally may have gotten ahead of itself. Roger Freeman, a Barclays Capital analyst, is scaling back his second-quarter estimates for Goldman and Morgan–largely because of the cost to both firms of repaying money to the Troubled Asset Relief Program.

Seacoast’s deepwater stock sale

Seacoast Banking Corp. of Florida is in a pickle.

The tiny bank with under $3 billion in assets is one of a handful of lenders that are so cash-strapped they’ve not only stopped paying dividends to shareholders, but to Treasury as well. The Wall Street Journal reported today that Seacost and two other small banks are no longer paying dividends on the preferred stock they gave to the federal government as part of Troubled Asset Relief Program capital infusion.

On May 19, the bank stopped paying dividends to all its various classes of shareholders.

The cost of paying back TARP

In a fitting twist of irony, Goldman Sachs joined other major banks in paying back the TARP on the very same day the Obama administration was releasing its financial regulatory reform package.

However, freedom for Goldman from the federal government dictating demands on compenstion will take a bite out of second-quarter earnings.  In a regulatory filing, Goldman says:

Wishing away toxic assets

It wasn’t too long ago that there were worries on Wall Street, and presumably in Washington, about the rising tide of so-called Level 3 assets on bank balance sheets. That’s all those hard-to-trade and impossible-to-value securities that many like to call “toxic assets,” but that U.S. Treasury officials euphemistically refer to as “legacy assets”.

These days, however, Washington policymakers seem to have forgotten all about those concerns. How else can you explain the Treasury’s decision to allow 10 banks to repay $68 billion in TARP funds, even though the trash heap of ailing real estate-related securities and other troubled assets at many of these institutions has only grown since last summer.

Regulators are opaque, too


Matthew GoldsteinSo much for more transparency in the financial system.

It’s hard for regulators to demand greater transparency from Wall Street banks when they can’t even live up to their own standard of greater disclosure. A case in point is the Treasury Department’s press release touting its decision to permit “10 of the largest U.S. financial institutions” to begin repaying $68 billion in federal bailout money. The only trouble is Treasury doesn’t name any of the banks that can begin repaying money to the Troubled Asset Relief Program.

Treasury, it appears, has left it up to each of the “10 of the largest U.S. financial institutions” to make their own announcements about their intentions to repay the TARP. And some, like Morgan Stanley, didn’t waste anytime putting out a PR trumpeting its plan to repay $10 billion in TARP money.