Wells Fargo, Citigroup To Repay Taxpayers
ARI SHAPIRO, host:
This is MORNING EDITION from NPR News. Sitting in for Steve Inskeep, I'm Ari Shapiro.
RENEE MONTAGNE, host:
And I'm Renee Montagne.
Two more big banks - Citigroup and Wells Fargo - said, yesterday, they plan to pay back the taxpayer funds they received last year as part of the big bank bail out. Some say it's a sign the economy is returning to normal, others say the banks just want the government to stop controlling their pay packages for executives. Let's get some analysis, now, from David Wessel. He's economics editor of The Wall Street Journal and a regular guest on our program. Good morning.
Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning, Renee.
MONTAGNE: Well, David, of those two things, which is it?
Mr. WESSEL: It's a little bit of both, actually. It is encouraging that the economy in the markets are strong enough now that Citi and Wells can actually go to private investors and raise $35 billion dollars so they can pay back the government. In all, actually, the 19 big banks that took - that underwent the stress test that the government did earlier this year that got so much attention, have managed to raise $114 billion dollars from private investors. So that's surely is a good sign that they think that the banks are going to make it. But it's also true that when they pay the money back, the Treasury's pay czar has less control of their executives' salary and bonuses than he does today, and that surely was also a factor in these banks' decisions and the other ones that pay back the money.
MONTAGNE: Well, other banks did pay back their taxpayer money earlier, as we said, is it that Citigroup and Wells Fargo weren't, you know, just didn't have the money?
Mr. WESSEL: Well, you know, that's part of it but mainly it's because once the Treasury and Federal Reserve put the money into the banks, they had a lot of control over the banks. And they didn't want the banks to pay back the money unless everybody was sure that the banks had really got their business plans together and were truly strong enough to stand on their own. Nobody wants them to be back at the bailout window in six months. And you can see, in the difference between the two banks that paid back money yesterday, that they cut different deals. Wells Fargo had to raise one dollar of private capital for every two dollars of taxpayer money it paid back. But Citi, which has much bigger problems, they had to raise one dollar of private money for every dollar they paid back. So there was a lot of negotiations here.
MONTAGNE: The government appears to be making some money on this deals?
Mr. WESSEL: Yes. The government's like an insurance company that sells fire insurance to your cabin in the woods, in a draught, when the fire danger is high. If the property does not burn down and the policy expires, well, the insurer makes a good profit. It took a risk. The risk did not turn out to be -the house did not burn down, and so it gets to keep all the fees. By our estimates of the Wall Street journal, the government could make as much as $14 billion dollars on all the aid to Citi. But, of course, the government's likely to lose so much money on some of the other parts of the bail out - General Motors, insurance company AIG, Fannie Mae and Freddie Mac - that the whole rescue was still going to be a money loser for the taxpayers. That's almost certain.
MONTAGNE: Now, about those banks, though, if they're healthy enough to pay back their taxpayer aid, why are they not lending more?
Mr. WESSEL: Well, that's a good question. I think it's one that the president asked yesterday when he summoned the heads of the big banks, or at least the ones that could get through the fog and come to Washington.
MONTAGNE: Yeah, just to say, a couple of three of the (unintelligible) they were stuck waiting for a plane, right?
Mr. WESSEL: Right.
MONTAGNE: From New York city.
Mr. WESSEL: The bankers offer us a couple of explanations. They say, in some cases, the demand for loans is down, businesses aren't asking for money; in other cases, the people who are asking for money don't look like very good bets, given how weak the economy is. And they also complain that the politicians, say, make more loans and then the bank supervisors say don't make any bad loans, and they get pressure both ways. And there is some truth to all of these things, but it's also true that some big banks are finding it very profitable to trade. They can borrow from - at almost nothing in the short term money market, thanks look - thanks to the Fed, and is much, maybe more possible to do that and to actually make loans.
MONTAGNE: Well, just briefly, President Obama and some in his administration have used some pretty strong rhetoric about the banks. I mean, the president had called them fat cat bankers on Wall Street just a couple of days ago, what is behind this, this rhetoric?
Mr. WESSEL: The president knows that the public's angry with the banks, and I think he is doing a lawn on the rhetoric front to cover that they are not actually maybe doing so much on using the power they have to make the banks lend, so it makes good press. And also, he is clearly angry that the big banks have been lobbying against some of his financial regulatory proposals, and this was clearly an attempt to push the top executives to restrain their lobbyists.
MONTAGNE: David, thanks very much.
Mr. WESSEL: You're welcome.
MONTAGNE: David Wessel is the economics editor of The Wall Street Journal.
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