Ana_Idkit

Morning Call Nov 4 2008

While we realize it’s past many a trader’s bedtime, 7 p.m. EST is when the first U.S. presidential election returns in highly decisive states such as Virginia start rolling in. All of which means you can pretty much figure out who has a hammer lock on the race before polishing off your last hot toddy of the evening. A cheat sheet on what (and where) to watch.

‘TARP’ – Or TRAP? Er, wasn’t the standby Greek chorus among Wall Street banks just last week touting their unbridled health and superfitness? So what’s up now with the very same institutions thinking that if they don’t bleed the TARP for all it’s worth, they’ll look like a passel of country palookas unable to recognize the value of free cash? Or even worse, end up competitively disadvantaged because every other bank took handouts but them? Here, the makings of what’s now expected to be a gold rush of thousands of firms to the great government teet.

Morning Call: November 3

Treasury and banking regulators say as many as 1,800 publicly held institutions could apply for government investments in coming weeks, out of concern that failing to do so could make them losers in a banking sector reshaped by the Treasury’s $700 billion rescue plan.

Depending upon conditions still being crafted by Treasury, thousands more private banks could apply for government capital as well, a Treasury spokeswoman said Sunday.

Only days ago, many healthy banks were saying they didn’t need taxpayer money under the Troubled Asset Relief Program. These healthy banks said they worried that taking government investments could unfairly tar them as in need of a bailout. In the past week, that perception has been reversed, due in large part to efforts by Treasury, banking lobbyists and legal advisers to sell the TARP.

Now institutions across the U.S. worry that if they don’t try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.

“There’s a perception in the market that the government is actively picking winners and losers…we wanted it well-known in the market that we’re on the list of survivors,” said Roy Whitehead, chairman, president and CEO of Washington Federal Inc. in Seattle, one of about 20 regional banks approved by Treasury for the program last week.

In the past week, Treasury said, hundreds of publicly traded institutions have applied for the program, or signaled their intent to do so by the Nov. 14 deadline. Responding to lobbying by banking trade groups and their members, Treasury last week extended that deadline for private banks to give them a chance to apply as well. Under the program, Treasury takes an equity stake in an institution in exchange for an investment of as much as 3% of risk-weighted assets, to a maximum of $25 billion.

Treasury spokeswoman Jennifer Zuccarelli said architects of the Treasury program anticipated the huge interest, and that the $125 billion remaining for the program after the first nine big banks committed to the funds in October will be enough.

But with new types of institutions — last week, Treasury said insurers would be eligible — being added almost weekly, some banks and their advisers say they aren’t so sure. They are scrambling to commit to the program, worried they will be left out in the cold when the deadline passes.

“It seemed like the consensus in the industry was…go out and get this,” said William Marsh, president and chief executive of Farmers National Bank of Emlenton, in Emlenton, Pa. Mr. Marsh said his bank is healthy and viable without government money, but he leans toward taking the money anyway.