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February 23rd, 2009 (Modified on April 5th, 2009)

Bancorp CEO Delivers Harsh Words for TARP



While addressing colleagues last week at a forum for fellow executives, Bancorp CEO Richard Davis took the opportunity to blast the TARP program. Calling the initiative “troubled” and “lousy,” Davis backed up other executive grumblings that the money was more or less forced upon banks. While Davis said that was the case for his institution — “I will say this very bluntly: We were told to take it. Not asked, told ‘You will take it’” — a Bancorp spokesperson quickly refined the CEO’s statement saying Bancorp was forced to take the money for “competitive reasons.”

Why would Bancorp strike Davis’ comment? Perhaps because it was seen as impolitic to do so?

According to Davis, Bancorp didn’t take the money for “competitive reasons”:

“We were told to take it so that we could help Darwin synthesize the weaker banks and acquire those and put them under different leadership,” he [Davis] said. “We are not even allowed to mention that. … We were supposed to say the TARP money was used for lending.”

But Davis is talking about it now, he says, because he and others oppose current and future strings attached to the program. Davis didn’t detail those strings, but he said he and some peers intend to voice their opinions to Washington, D.C., soon.

We wrote a post at the end of last week which reported that multiple financial institutions have respectfully declined TARP funds precisely because of the impending strings attached:

Many banks have grown wary of the restrictions and added scrutiny that come with TARP money. The banks that don’t need the money to continue growing are finding the terms less and less attractive.

Yet, will the new administration be willing to take these institutions at their word? Beginning Wednesday, Federal regulators will begin performing “stress tests” on financial institutions to determine their capital needs:

Any government capital under the new program will come in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks well capitalized, the regulators said.

The government seems eager to pledge money to financial institutions — and this time officials have announced there will be strings attached. Will financial institutions be even more likely to decline the money this time, and will the government be even more forceful in telling them the opposite?

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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