Some Banks Eager to Return Government Bailout Money?

February 11, 2009

(ChattahBox) — Goldman Sachs and Morgan Stanley have indicated they are hoping to return bailout funds as quickly as possible, on worries government may intrude further in their business. Both banks received $10 billion under the first rescue plan last fall. Paying back all those funds would be difficult in this tough economic environment, but banking executives worry that the government may intrude further into their businesses as long as they are beholden to Washington.

In recent weeks, the Obama administration has announced that banks will have to disclose more information about their spending and cap executive pay at $500,000. Several lawmakers have gone further with proposed measures about compensation for all bank employees as well as halting certain types of immigration visas for companies that received government money. Industry groups say the new rules are unfair. Apparently living on 500K salaries,and no more 1st class hotels, junkets is cramping their style.

But the banks are likely to realize returning the money is wishful thinking, analysts said. The government required banks to replace taxpayer money with new equity — in the form of common stock or preferred shares — before any repayment. And the markets for raising capital are all but dead, especially for financial companies.

Banks are not allowed to repay the government money out of their earnings for three years, though some bank executives are privately saying they think the government may reverse that rule if they start earning money again. After all, bank executives said, it may be beneficial for the government to show taxpayers that some banks are regaining their financial strength. If the banks are now eager to return the bailout money because they don’t want the government breathing down their collective backs then I see this as a sign that these new efforts to clamp down and monitor their practices is setting the right tone.


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