Bank of American Corp. (BAC), which is
getting $15 billion from the U.S. government as part of the Treasury
Department's $250 billion "recapitalization" effort, is doubling its stake in
state-owned SHA%3A601939., and will hold a 20% stake worth $24 billion in
China's second-largest lender when that deal is finalized.
PNC Financial Services Group Inc. (PNC),
which will get $7.7 billion from Treasury's Troubled Assets Relief Program (TARP), is using that cash
infusion to help finance its $5.2 billion buyout of embattled National City
Corp. (NCC).
And U.S. Bancorp (USB), which
received a $6.6 billion capital infusion from that same rescue package, has
acquired two California lenders – Downey Savings & Loan Association, F.A., a
subsidiary of Downey Financial Corp. (DSL), and PFF
Bank & Trust, a subsidiary of PFF Bancorp Inc. (OTC: PFFB).
U.S. Bank agreed to assume the first $1.6 billion in losses from the two, but
says anything beyond that amount is subject to a loss-sharing deal it struck
with the Federal Deposit Insurance Corp. (FDIC).
While the Treasury Department's investment of more than $250 billion in U.S.
financial institutions has been billed as a strategy that will bolster the
health of the banking system and also jump-start lending, buyout deals such as
these three show that the recapitalization plan has actually had a much
different result – one that's left whipsawed U.S. investors and lawmakers alike
feeling burned, an ongoing
Money Morninginvestigation continues to show.
Those billions have touched off a banking-sector version of "Let's Make a Deal," in
which the biggest U.S. banks are using government money to get even bigger.
While that's admittedly removing the smaller, weaker banks from the market – a
possible benefit to consumers and taxpayers alike – this trend is also having a
detrimental effect: It's reducing the competition that's benefited consumers and
kept the explosion in banking fees from being far worse than it already is.
This all happens without any of the economic benefits that an actual increase
in lending would have had. And it does nothing to address the billions worth of
illiquid securities that remain on (or off) banks' balance sheets – as the
recent Citigroup Inc. (C) imbroglio demonstrates.
In fact, Treasury's TARP program has even managed to create a potentially
illegal tax loophole that grants banks a tax-break windfall of as much as $140
billion. Lawmakers are furious – but possibly powerless, afraid that a
full-scale assault on the tax change could cause already-done deals to unravel,
in turn causing investor confidence to do the same.
One could even argue that since this first bailout (the $700 billion TARP
initiative) has fueled takeovers – and not lending – the government had no
choice but to roll out the more-recent $800 billion stimulus plan that was aimed at helping
consumers and small businesses – a move that may spur lending and spending, but
that still adds more debt to the already-sagging federal government balance
sheet.
At the end of the day, these buyout deals are bad ones no matter how you
evaluate them, says R. Shah Gilani, a retired hedge fund manager and expert on
the U.S.