Yesterday POGO sent a letter to Congress about another issue to add to the laundry list of things to fix with the Troubled Asset Relief Program (TARP). The TARP was ostensibly created for the purpose of propping up the financial system by assisting institutions in danger of going under. But it looks like a few big financial groups are trying to morph into different animals in order to get a piece of the federal pie.
We heard through the grapevine that a Dutch insurance company called Aegon was attempting to purchase a bank in Maryland in order to get at TARP funds. While their bid seems doomed to fail, we found eight other institutions that look to be doing the same thing: Lincoln National Corporation, Hartford Financial, Genworth Financial, CIT Group, Morgan Stanely, GMAC Financial Services, Goldman Sachs, and American Express.
These insurance companies, investment banks, and credit agencies seem to be straying from their business models in order to become traditional banks. Lincoln, Genworth, and Hartford are attempting to become Federal savings and loan holders through the Office of Thrift Supervision. Should they be approved, they would then theoretically qualify for TARP funds. The others have added Bank Holding Company to their list of services by opening branches in Utah and receiving approval from the Federal Reserve Board of Governors. They too would apparently be eligible for TARP funds once approved.
Bear in mind, there is nothing illegal with what these companies are doing; financial institutions acquire each other all the time. What struck us as fishy was the timing. Four of these companies claimed to be in good financial shape just a few weeks before applying for bailout money. As a matter of fact, Kenneth Chenault, American Express's CEO, asserted that the company's “business model is well positioned to generate earnings and excess capital even in an economic environment that is likely to be among the weakest in many years” less than a month before becoming a Bank Holding Company and, presumably, applying for TARP funds.
Again, we don't mean to accuse anyone of anything. We just want to make sure that Congress knows about this practice. They must decide if taxpayers should be footing the bill for companies that are apparently trying to jump on the gravy train.
-- Eric Orenstein