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A stampede to ‘banks’ as companies seek a piece of the bailout

By Carol Eisenberg

December 26, 2008 at 9:08am

The news that CIT Group Inc. and American Express were approved this week for $5.7 billion in bailout funds after becoming “bank holding companies” strikes us as a particular sort of American ingenuity.

After all, who wouldn’t call themselves a ‘bank holding company,’ if that qualified them for billions of dollars in taxpayer money?

The independent watchdog group, Project on Government Oversight (POGO), sent a letter to Congressional leaders last week identifying eight companies that have sought funds from the Troubled Asset Relief Program by purchasing banks, or else getting approved as “bank holding companies,” to which bailout money is restricted.

POGO suggested the companies “are trying to morph into different animals” to get a piece of the federal pie. A Dutch insurance company called Aegon is even attempting to purchase a bank in Maryland in order to get at TARP funds.

And who could blame them, really, when the list of companies applying for TARP funds grows longer each day?

POGO’s list includes:

  • Lincoln National Corporation, which is in the process of acquiring Newton County Loan and Savings, an Indiana bank.
  • Hartford Financial, which is acquiring Federal Trust Corporation, the parent company of Federal Trust Bank in Florida.
  • Genworth Financial, which is purchasing InterBank FSB in Minnesota.
  • CIT Group, which has converted its Utah Industrial Bank to a Utah State Bank.
  • Morgan Stanley, which was approved as a bank holding company on Sept. 21.
  • GMAC Financial Services, which opened GMAC Bank, a Utah-chartered bank, and was approved as a bank holding company on Christmas Eve.
  • American Express, the nation’s fourth-largest credit card company, which was approved as a bank holding company on Nov. 10. The company owns American Express
    Centurion Bank, an industrial loan bank, and American Express Bank FSB, a federal savings bank in Utah.
  • Goldman Sachs Group, which was approved as a bank holding company in mid-September and opened Goldman Sachs Bank USA in Salt Lake City.

Lincoln, Genworth, and Hartford are attempting to become Federal savings and loan holders through the Office of Thrift Supervision.

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.

Yet POGO states that four of the companies claimed to be in good financial shape just weeks before applying for bailout money. The letter quotes American Express CEO Kenneth Chenault, for instance, asserting 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.”

Of course, American Express has had to contend with higher credit costs and mounting losses as a result of the economic meltdown too. But when questioned about their interest in the bailout funds, neither American Express, nor CIT Group would explain how they intended to use it.

“The Fed has yet to meet a bailout it does not like,” Sean Egan, managing director at Egan-Jones Ratings Co., an independent credit-rating firm, told the Wall Street Journal.

Doesn’t exactly inspire trust that these companies will use the money to advance the goals set out by Congress to unfreeze the credit markets and strengthen the financial system.

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2 Comments

  • #1.   William Perry 12.28.2008

    Looks like a modified chain letter with a lot more letters… Post Office figured out that there would be a lot of losers of (The enticing prize)and just a few that were going to get lots of other peoples prize. Our government figured out the scheme and outlawed the chain letter to be sent thru the mail…. Right? Just keep diggin and let’s get a handle on the US Dollar baby… Greed will wipe out every country if we don’t get a handle on honest business… Borrow at 6%, save at 3% and put down 30% on houses and cars… This country needs industry right now to put Americns back on course…. Old fashioned? Maybe…. But it’s the real thing when you save up for something and pay cash to the merchant who makes it avail-able. I’m 72 and see greed tearin us up. William P.

  • #2.   Jane Pointer 01.08.2009

    I would like to put my company on the bailout list.
    How can I do this.
    Thanks
    Jane

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