Banks Have Raised Billions Since Test/Geithner faces bail-out criticism/At Geithner's Treasury, Key Decisions on Hold

Banks Have Raised Billions Since Test, Geithner Says
By JACK HEALY
Copyright by The New York Times
Published: May 20, 2009
http://www.nytimes.com/2009/05/21/business/economy/21geithner.html?ref=global-home


The country’s biggest banks have made moves to bolster their balance sheets by some $56 billion since the government unveiled the results of its financial “stress tests” two weeks ago, Treasury Secretary Timothy F. Geithner said on Wednesday.

In testimony before the Senate Banking Committee in Washington, Mr. Geithner said the country’s largest financial institutions had raised billions by issuing common stock and new debt, including $8 billion in bonds not guaranteed by the government.

After conducting a monthslong review of 19 of the country’s largest financial institutions, regulators found that 10 needed to raise a total of $75 billion in additional capital to withstand losses if the economy took another turn for the worse. The government said banks could raise the money privately, or convert their preferred shares held by the government to common stock.

Since then, the 19 banks have raised or announced plans to raise $56 billion — $48 billion of which came from the 10 banks that needed to bolster their capital levels, Mr. Geithner said.

Several banks, from Goldman Sachs to Morgan Stanley to State Street, have said they want to repay the money they received from the government’s $700 billion bailout, and are raising money to do so. (Bank of America announced Tuesday night that it had raised $13.47 billion through the sale of 1.25 billion shares of stock.)

In his testimony, Mr. Geithner offered a broad assessment of how the government had been trying to stabilize the financial system, calm the credit markets, keep the automobile industry afloat and revive the flagging economy.

“There are important indications that our financial system is starting to heal,” Mr. Geithner said in his remarks.

He said that lending markets were stabilizing, and that the interest rates that businesses pay to raise money from bond buyers had been falling, even for companies with subpar credit ratings. Investors sense less risk in lending markets, and the cost of credit protection for American banks has fallen, he said.

The government’s $1 trillion program to buy troubled assets from banks using a nexus of public-private partnerships is likely to get rolling within six weeks, he said. The Treasury Department has received more than 100 applications from would-be fund managers for the program.

And he said that less than $100 billion of the $700 billion federal bailout remained. The government has $98.7 billion remaining, and anticipates receiving $25 billion in repayments.









Geithner faces bail-out criticism - Senators bemoan AIG ‘black hole’
By Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: May 20 2009 15:38 | Last updated: May 20 2009 16:44
http://www.ft.com/cms/s/0/e533887e-4542-11de-b6c8-00144feabdc0.html


Timothy Geithner, US Treasury secretary, faced tough questions over the government bail-out programme on Wednesday, with the powerful Senate banking committee bemoaning the “black hole” of AIG, the insurer, and the “politically motivated” restructuring of General Motors.

Pointing to reduced spreads on bonds, Mr Geithner said there were “important indications that our financial system is starting to heal” in the wake of the $700bn troubled asset relief programme.

But senators focused on the “huge intervention in the private market”, asking the Treasury secretary why the government could not extracted concessions from AIG’s counterparties when it bailed out the insurer with more than $170bn of Tarp money.

Mr Geithner said such a move would be too risky. “I don’t believe that the system today can withstand the effects of a failure of this institution to meet its obligations. I wish it were not the case, nothing would make me happier.”

Richard Shelby, the leading Republican on the committee, said AIG seemed to be “a black hole. It’s still haemorrhaging money.” He added that the Treasury needed to have a plan to unwind its unprecedented intervention in the market by the government and Federal Reserve.

“Doing that carefully and well will be one of the most important things facing us,” said Mr Geithner, but he added that it was not the moment to set out the “exit strategy.” Withdrawing support too early was one of the gravest risks, he said. “Crises don't burn themselves out,” he said.

Bob Corker, a Republican senator from Tennessse, reflected concerns of some financial institutions about the government-supervised restructuring of GM, which would see bondholders taking a smaller chunk of equity in the carmaker than a union healthcare fund.

Mr Geithner said he would defend the restructuring against Mr Corker’s charge that it was “politically motivated” after the June 1 deadline for creditors to accept the offer, which could see GM follow Chrysler into bankruptcy protection.

The $700bn troubled assets relief programme (Tarp) has been used to prop up the economy, with the government buying equity stakes in banks, extending loans to the car industry and trying to kickstart markets for complex securities.

The banking committee, chaired by Democrat Christopher Dodd, questioned Mr Geithner over the problems of small banks, which are demanding not to be hit with increased insurance fees as a result of the financial crisis.

Mr Geithner said that the public private investment programme (PPIP), which will provide investors with government backing to buy troubled securities and loans from banks, would be up and running within six weeks. He said he had received more than 100 applications from prospective fund managers.

PPIP is the latest and one of the most controversial parts of the bail-out plan with some economists warning that it places too much risk on the taxpayer and could yield windfall profits for private investors.

Mr Geithner said there were at least $123.7bn of available Tarp funds after all the various iniatitives, including a “conservative” estimate for a $25bn payback from existing recipients.




BofA seeks to repay $45bn by end of year
By Patrick Jenkins in London and Greg Farrell and Francesco Guerrera in New York
Copyright The Financial Times Limited 2009
Published: May 20 2009 23:30 | Last updated: May 20 2009 23:30
http://www.ft.com/cms/s/0/74f80dca-4568-11de-b6c8-00144feabdc0.html


Bank of America wants to pay back $45bn in bail-out funds by the end of the year, in a faster-than-expected move made possible by an accelerated programme to raise capital.

BofA is on track to raise more than $35bn in capital by the end of September, say people familiar with the matter, which it must do before paying back the $45bn bail-out money it received under the Troubled assets relief programme.


BofA’s desire to repay its Tarp money early will surprise the market. Most analysts expect BofA to be one the last banks to do this, partly because of the large amount of the funds it received and partly because it was found to have the biggest capital shortfall of any US bank in recent regulatory stress tests.

The US government has the final say on whether and when banks that received Tarp funds are allowed to repay. The authorities have been concerned that banks’ eagerness to return the money and free themselves from the strict congressional supervision imposed under the programme would see troubled lenders repay funds before they were strong enough to do so.

BofA, found to have a capital shortfall of $33.9bn in the regulatory stress tests this month, has since raised $13.5bn of capital by selling common stock and another $4.5bn of after-tax capital from selling a stake in China Construction Bank.

People familiar with the bank’s plans say negotiations to sell some of BofA’s non-core assets are under way and, if the asset sales occur in the next few months, the bank will be able to fulfil its stress-test obligations and pay back Tarp funds from its $173bn cash reserves.

BofA believes it can raise $6bn to $7bn of after-tax capital from the sale of assets such as private bank First Republic, administration group Financial Data Services and insurer Balboa, say people familiar with the matter. The bank could also convert $9bn in preferred shares and as much as $2bn-plus in deferred tax gains.

BofA’s chief executive Ken Lewis, in London on Wednesday for a UK-US business conference, declined to comment on the Tarp repayment details but indicated he was “quite pleased” with the progress of planned asset sales.

“Every single one of our investors wants us to repay the Tarp money as soon as possible,” Mr Lewis told the FT. Meanwhile, Mr Lewis said the bank was planning to overhaul its pay system. “Going into next year, we’ll have a different system,” he said. “The mix is going to change to less variable pay and more salary.”

Later, he told the conference: “Having the government legislate compensation practices would be disastrous. But I do think that investors, directors and managers can push for changes that will help create a . . . more stable – and more humble – financial services industry.”








At Geithner's Treasury, Key Decisions on Hold - Many Advisers' Roles Are Undefined And Others Still Awaiting Confirmation
By David Cho
Copyright by The Washington Post
Monday, May 18, 2009
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/17/AR2009051702268.html?hpid=topnews


Seven weeks after the Treasury Department announced that it was ousting General Motors chief G. Richard Wagoner Jr. in the federal bailout of the company, he is still technically on GM's payroll.

Wagoner's removal has been held up because senior Treasury officials have yet to decide whether he should get the $20 million severance package that the company had promised him.

The delay is one of many hitches that have slowed a host of important policy actions in the four months since Timothy F. Geithner became Treasury secretary. While Geithner has taken dramatic steps to address flashpoints in the economy, the work of carrying out those policies has bogged down because critical decisions about how to do so aren't being made, interviews with a broad range of federal officials show.

Government officials, inside the Treasury and out, say the unresolved issues are piling up in part because of vacancies in the department's top ranks. But some of the officials also cite the Treasury's ad-hoc management, which is dominated by a small band of Geithner's counselors who coordinate rescue initiatives but lack formal authority to make decisions. Heavy involvement by the White House in Treasury affairs has further muddied the picture of who is responsible for key issues, the officials add.

One of the department's signature initiatives, considered vital for getting at the root of the financial crisis, aims at relieving banks of their toxic assets. But to those familiar with the program, it remains unclear who will decide some of the practical details, such as whether foreign firms will be allowed to participate in the funds that buy the assets. This uncertainty is slowing the rollout of the program, which in any case has proven daunting to design. Announced in early February, it may not launch until July, officials say.

In March, Treasury officials clashed over a $15 billion initiative to use money from the federal bailout package to free up credit for small businesses. Geithner's counselors pressed to announce the program quickly, despite protests from the career staff members who said it would not work. Unable to raise the issue with Geithner himself, the staff members appealed directly to the White House but were rebuffed, according to sources familiar with the episode.

President Obama announced the program two months ago, and it is still struggling to get off the ground. Officials are looking to overhaul the proposal.

And in the wake of the public firestorm over bonuses paid by American International Group, senior Treasury officials have been meeting several times a week all spring to review, one by one, the payments to the company's executives. But the time-consuming discussions have never resolved whether any of the executives should get paid.

Geithner said in interviews that some of the department's internal difficulties result from the intense pressure on officials to develop a raft of rescue initiatives in a very short time.

"We were just putting enormous pressure on these people to put in place and execute this comprehensive set of programs," Geithner said. "In a crisis, the most important thing is to show the capacity for credible initiative that is actually going to fix the problem. That's why we are trying to do so much so early." He added, "It could get tough at times . . . but I think they are doing a great job in that context, and they are working 24 hours a day to put out A-plus policy."

Still, some lawmakers and government officials said Geithner needs to be a stronger manager.

"No one knows how to get decisions made," said a senior government official familiar with the Treasury's inner workings. "Major decisions can happen very fast at the top, and then after that there are tons of detail and nuances that have to get worked out without clear chains of command. Either the seats are unfilled . . . or you have to answer to a half a dozen counselors running around."

So far, nearly four months after the Obama administration took power, the Treasury Department is still without a deputy secretary. Two undersecretary positions -- including the vital post overseeing domestic finance -- have not been filled and many other division heads have not been named. The White House vetting of potential candidates has proven arduous, and nearly all of those individuals nominated have yet to win Senate confirmation and fill out Geithner's team.

Q&A, Transcript: Balance of Power with Tucker Carlson and Ana Marie Cox
"I've seen the effect of this, and I wish he would move quicker to put in his own people," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

Help could soon be on the way. Confirmation hearings for Neal Wolin, the administration's pick for deputy Treasury secretary, began a week ago. Treasury staff members have been impressed by the management skills of former Fannie Mae chief executive Herbert M. Allison Jr., who awaits confirmation as Geithner's pick to lead the bailout operations. The White House is also seeking to bolster the Treasury's ranks by adding former Clinton press secretary Jake Siewert as counselor to Geithner.

Aside from getting officials into place, Geithner still needs to define the roles of his senior counselors and delegate some decisions to lower-ranking officials, several government officials said.

"Tim's nature is to be very inclusive," said an official who frequently interacts with the Treasury. "But there are too many decisions to make with 20 guys around his table."

While federal departments often experience a degree of upheaval when administrations change, the difference between the Treasury of former secretary Henry M. Paulson Jr. and Geithner's has been stark. Under Paulson, the department nearly always made its own decisions. The Bush White House, nearing the end of its tenure, hardly intervened.

But now, even minor matters, such as Web site design or news releases, are reviewed by the White House. Staff members detailed from the National Economic Council, reporting directly to Obama senior economist Lawrence H. Summers, roam the Treasury building. Treasury staff members working on restructuring the nation's automakers took much of their direction from the NEC, sources said.

Geithner said he welcomes the input from senior White House officials because they provide intelligent feedback and because he has been short-staffed. After studying the last dozen Treasury secretaries, Geithner said he became convinced that the Treasury needed to closely collaborate with the White House.

But the time spent meeting with White House colleagues on high-priority issues -- from the federal budget and tax policy to health-care reform and a proposed overhaul of financial regulation -- has left him little chance to manage his staff.

"People think he's very, very smart, but he has not exerted a management presence yet," added a source familiar with the Treasury's inner workings. "He's being stretched in a thousand directions . . . but I don't know if that absolves him of responsibility for management."

Geithner insists he has been tending to his staff, reaching out across the department in a way his predecessor never did. He said he encourages anyone with problems to come to him directly and regularly speaks with the rank-and-file.

"I know everyone would like a little more clarity about who's going to be working for whom, which we are trying to give them," he said. "But in the interim we are just trying to get stuff done the best we can."