The analysts at Bank of America have helpfully put together this chart of which banks have asked (or been forced to take) money from the Treasury Department’s capital injection scheme. (via FT Alphaville)
And what are banks using this money for? “While some banks are using thecapital to replenish battered balance sheets, several are accessing what they see as relatively inexpensive capital for deals,” the Financial Times reports.
Yesterday Senator Judd Gregg defended banks using the new capital to make acquisitions by saying it would allow strong banks to acquire weak banks and prevent them from failing. CNBC anchor Mark Haines was outraged. He pointed out that this is not what the American people were told the bailoout money would be used for.
More importantly, Gregg’s wrong. Why would any bank use the capital to buy a troubled bank rather than just acquire a smaller, healthy bank? Banks will aim for the best return on the capital they’ve been handed by the Treasury Department. Buying failing banks holding troubled assets isn’t likely to fit into that program.
The only exception to this would be acquiring a bank with lots of troubled assets that could be sold to the Troubled Asset Relief Program. That would seem a pretty good deal. Use the Treasury’s capital to buy a bank holding lots of junk, then sell the junk to the TARP, potentially getting a huge part of the capital back. The difficult part is that no one knows what prices the TARP will pay, so it’s hard to gauge the return on this scheme.