Posted by: Jane Sasseen on October 23
by Jane Sasseen and Theo Francis
Update: As of 6 p.m., no announcement, and word is that none is likely immediately. One possibility: the Treasury could decide not to announce future financing, leaving it to the institutions themselves to disclose, on the theory that the approach puts less pressure on banks that aren’t named.
Posted Oct. 23:
No names yet, but late in the evening on Thursday, Oct 23rd, word spread in Washington that Treasury Secretary Henry Paulson was preparing to announce the next round of financial firms to receive funding from Uncle Sam under the Treasury’s $700 billion rescue plan.
A source close to the transaction says that Treasury is preparing to announcing the names of the next group of firms into which it will pump funds in exchange for preferred shares; the announcement was expected to come on Friday, or Monday at the latest, with the Treasury expected to announce deals totalling between $50 billion to $125 billion.
Having spent $125 billion on the first round of investments in the country’s nine largest banks, Treasury can spend up to another $125 billion without having to go back to Congress for more funds.
Who is on the list? The group will be composed of regional banks (see below) as well as additional large national banks. And unlike the first round, it may include insurance companies as well; as credit default swaps and other instruments have gone bad, many are expected to report very weak results this quarter.
One more difference with the first round, in which the country’s largest banks were called in to the Treasury and essentially jawboned into accepting the funding by Paulson: this time around, the funding will go to banks and other institutions who have actively applied to Treasury for the funding.
Among the banks who have publicly stated that they were applying for the capital infusions:
* United Community Banks Inc, the third largest bank in Georgia;
* Other regional lenders who have indicated they want to tap the recapitalization program, according to the same Bloomberg article, include KeyCorp and Regions Financial Corp. that want to participate in the $250 billion program to recapitalize banks.
Announcing aid for more banks could lift some of the pressure the Treasury has been getting from lawmakers demanding to see tangible progress from its $700 billion financial rescue program.
At a Senate Banking Committee hearing on Thursday, lawmakers grilled top bailout aid Neel Kashkari about reports that the biggest banks -- strongarmed into accepting the Treasury investment even if they said they didn't need it -- might hoard the government money instead of lending it out.
"What assurances, what commitments, are the Treasury going to extract from these institutions, that they're not going to do this?" Sen. Christopher J. Dodd (D-Conn.), the committee's chairman, said. "I think we need more than just begging" from the Treasury. Said Sen. Richard Shelby (R-Ala.), the ranking Republican, "Why would you want to push money on people that didn't need it?"
Kashkari replied that "there are strong economic incentives" for the banks to "put that capital to good use -- their own shareholders will demand it."
The senators saved their sternest words, however, to criticize the time it has the Treasury and other administration officials to increase assistance to homeowners facing foreclosure. Noting that 9,800 homes were foreclosed on each day, Sen. Robert Menendez (D-NJ) all but charged the administration with foot-dragging. "If this statistic were that we were losing 9,800 Wall street jobs every day, we would have ended this long ago," he said. "Banks have to understand that these funds are not a gift. If they don’t want to play by our rules, then they certainly don’t have to cash the check."
Of the administration officials present, Sheila Bair, chairman of the Federal Deposit Insurance Corp., spoke most strongly for modifying mortgages. Currently, loan companies are "just doing it ad-hoc, they’re doing it borrower by borrower," she said, citing efforts by the agency to use a failed IndyMac to devise more efficient approaches.
Several senators questioned whether the voluntary programs currently in place -- including some they had championed -- would prove sufficient, and quizzed their witnesses about how the government could go beyond them.
"Do you have any hope for a voluntary model?" Sen. Chuck Schumer (D-NY) asked Bair. "I don't."
"No," replied Bair. "I don't."
Washington Bureau Chief Jane Sasseen and other BusinessWeek writers cover the run-up to the Nov. 4 presidential election, paying close attention to how the candidates will handle issues such as housing, the economy, unemployment, and immigration.