PDA

View Full Version : Big Banking: Our Tax Dollars At Work



Gerry Clinchy
07-17-2009, 08:26 AM
NY Times
http://www.nytimes.com/2009/07/17/business/global/17bank.html?_r=1&th&emc=th

Isn't it warm and fuzzy to know that Chase & Goldman Sachs are doing so well?


Both banks now stand astride post-bailout Wall Street, having benefited from billions of dollars in taxpayer support and cheap government financing to climb over banks that continue to struggle. They are capitalizing on the turmoil in financial markets and their rivals’ weakness to pull in billions in trading profits.

Not every bank has fared as well:

And then there are the legions of regional and small banks that are falling in greater numbers across the country. While many have racked up large losses, they stand to bleed more red ink if the recession wears on. Fifty-three have failed this year, and the Federal Deposit Insurance Corporation (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_deposit_insurance_corp/index.html?inline=nyt-org) is girding for scores to follow.


Michael J. Cavanagh, the chief financial officer at JPMorgan, said its profit and fees from this business were “a record for us in a quarter and a record for anybody at any firm in any quarter.” The bank, he added, was “so very proud of those results.”


It has also profited from the demise of weaker banks to enlarge its market share in mortgages and retail banking. On Tuesday, as the CIT Group (http://topics.nytimes.com/top/news/business/companies/cit_group_inc/index.html?inline=nyt-org), a lender to many small businesses, negotiated with the government to avoid collapse, JPMorgan signaled that it was watching.

What happens if they screw up again, and are again considered "too big to let them fail"?


Yet JPMorgan’s transformation into one of the industry’s strongest players is underpinned by the shelter it received from the government: The bank used the money as a cushion until it was able to raise new capital. “There is no doubt all of us benefited from the government help — all of us,” said a senior executive at another Wall Street bank.


The payoff began last year. With the industry teetering on the verge of collapse, JPMorgan snapped up Bear Stearns in March 2008 and Washington Mutual last fall in two government-assisted transactions. Clients say that its growing dominance has given it more leverage to charge for lending and other services.



Mr. Dimon is also gearing up for a series of battles in Washington. One is over tighter regulations for derivatives (http://topics.nytimes.com/top/reference/timestopics/subjects/d/derivatives/index.html?inline=nyt-classifier), a business where the bank generates lucrative fees as one of the industry’s largest players.
Another is the creation of a new consumer protection agency, which could threaten the profitability of the bank’s mortgage and credit card businesses if it introduces tougher regulations.

I suppose the bright side is that since they're going to be paying back their billions in assistance and the government warrants are going to be auctioned, the government will have some billions to spend on some other good stuff.