Monthly Archives: February 2009

One boy I wish I had met

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Kirby Davidson is president of the Graduate School of Banking in Madison, Wis. Many of us have followed Kirby’s career since he was communications director at the Iowa Bankers Association, then moved to the Conference of State Bank Supervisors in Washington, D.C., and then he moved back to the Midwest to joined the Graduate School as its head of marketing. Last October, be became president of the school upon the retirement of Harry Argue.

For the last 10 years, you couldn’t know Kirby without knowing about his son, Ryan, who was diagnosed with brain cancer at the age of 6. Well, after a decade-long battle, Ryan died on his 16th birthday, Feb. 19. I never met Ryan, but I listened to Kirby talk about him, and I read the occasional newspaper story written about him which gave me enough information to know that Ryan had an upbeat spirit. Ryan was a college football fan and his family was able to give Ryan many great experiences, including traveling to USC games, and even a bowl game or two.

There’s a nice story in today’s Wisconsin State Journal about Ryan. Take a moment to read it. Ryan was a big fan but, in fact, he had a lot of fans. And to Kirby, our condolences…

Government actions are a wedge in the banking industry

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Further government intervention into the banking industry is creating greater divides between banks. This can only hurt the industry, long term. Notwithstanding nine of the nation’s largest banks that were essentially forced to take the money, TARP’s Capital Purchase Program is forcing bankers to line up either with the government or independent of the government.

 

This is a high visibility decision. There are web sites which are tracking the banks that participate in CPP. This is one example.

 

Furthermore, many banks are publicizing their decision — banks on both sides of the question. Those taking the money are running ads that say things like, “eligibility is limited to only well-run, highly-capitalized banks,” which implies that banks not taking the money can’t qualify for it. And I am seeing other ads run by banks that are refusing the money that say “We don’t need the government bailout,” which implies that the banks taking the money need a bailout.

 

Traditional banks have enough competitors that it is really too bad to see them competing amongst themselves.

 

The most recent news that the Treasury may buy as much as 40 percent of Citibank only validates the worst fears community bankers have held for decades –- that the taxpayer would end up bailing out the one of the nation’s largest banks.

 

The banking industry has long been divided between those who believe all banks should band together, and those who believe that the largest banks and the majority of smaller banks are so different that they really represent two distinct groups. The more government takes over the affairs of the largest banks, the harder it will be to convince community bankers that all banks should band together.

 

It is amazing to watch the incremental approach the government is taking with Citi. If the government were concerned about the viability of virtually any other bank, it would simply take over the whole thing in one Friday-afternoon event. But in Citi’s case, they are taking this gradual approach. The drama is unfolding before our eyes. When will regulators take more than 50 percent of the bank’s stock? When will they take over the whole thing? Let’s hope they never have to.

We like sharing those community outreach stories

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Banks do more for their communities than almost any other kind of business. In NorthWestern Financial Review magazine, we regularly write about community outreach efforts conducted by banks. These are the kinds of stories that really don’t get printed elsewhere, so we are very pleased to fulfill this important role.

In the March 1 edition, which will be coming across your desk in about a week if you are a subscriber, you will find a roundup of several community bank initiatives. One is called the “Random Acts of Kindness” program, conducted by Choice Financial in Fargo, N.D. Employees at each of the bank’s locations are empowered to do things for people in their communities, regardless of whether they are bank customers. For example, one employee bought gas for someone they met at the gas station. On another day, bank employees served breakfast to people who showed up at the “Labor Ready” facility in downtown Fargo. Labor Ready is a business where individuals get in line in hopes of securing a job for the day.

We also write about First National Bank of North Platte, Neb., which is donating $250,000 over the next five years to help the local community college construct a new health education complex. The bank considers the community college system to be incredibly important to the area and is making a long-term commitment to it.  These are the kinds of commitments that sometimes get taken for granted, but each one should be highlighted because they all involve careful consideration by bank board members and management.

We highlight several other community bank initiatives in the March 1 edition as well.

At NorthWestern Financial Review, we are grateful for a banking industry which is so engaged in its community.

News roundup from the region and beyond

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Banks in Illinois and Nebraska were closed on Friday: “This bank closure is not indicative of the general condition of our Nebraska banks; this is not the tip of an iceberg,” said John Munn, director of the Nebraska Department of Banking and Finance.

Ionia, Mich.-based Independent Bank announced a temporary suspension of foreclosure activity. So did JP Morgan Chase and Citigroup-but you heard about those, we’re sure.

Meanwhile, in Florida, a Miami bank CEO who worked his way up from the print shop, gave employees $60 million in bonuses after he sold the bank. The Miami Herald has the story, including this quote:

”I knew some of these people since I was 7 years old. I didn’t feel right getting the money myself.”

The public deserves better reporting than this

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What a ridiculous story this is, appearing in this morning’s Minneapolis-based Star Tribune. It’s a complete fiction to suggest the Minnesota Bankers Association’s “Day at the Capitol” yesterday was about responding to bank bashing. MBA has hosted a Day at the Capitol for decades, and like the last several years, about 200 people participated yesterday. The credit union industry had their day at the capitol on January 27, and many other industries will host a similar day this session, as they do every year.

Writer Chris Serres informs us in the fifth paragraph of his article that: “Perhaps mindful of this new era of austerity, bankers munched on lunches of meat sandwiches and potato chips. Each table had a metal pitcher of ice water.”I can assure Mr. Serres that lunch yesterday was about the same as it always is. He is completely off base suggesting that somehow the bankers are toning it down in response to public pressure.

One of the few paragraphs in the story that accurately represents yesterday’s events was this one: “I think banks are getting a bad rap,” said Atkins, in an interview after his speech. “They’re associated with the AIGs of the world, and some of the despicable acts they’ve been involved in. … But community banks are, by their nature, pretty conservative. Their idea of a high-priced junket is a trip to Applebee’s.”  Too bad it was the last paragraph of the story.

Serres, who has written a number of off-the-mark stories recently about the banking industry, seems to have his own ideas about what’s going on. This story, for example, which appeared in last Saturday’s newspaper, is based on highly suspect analysis and is needlessly alarmist.

I get the sense Serres is trying to localize a national story in a way that simply is not accurate. I would encourage him to dig into the industry without preconceived notions. I would encourage him to listen to the people who work around this stuff all the time — the people who really know what’s going on. The public deserves an accurate picture of Minnesota’s banking industry and, lately, it’s not getting it from the Star Tribune.

Clarifying the AP story about Wells Fargo

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This is why you don’t want to have anything to do with TARP money. If Congress perceives they have “given” something to a business, they want to run the business. I suspect we will see more of these kinds of stories, particularly regarding the initial nine banks that got TARP money. This story about TCF Financial appeared in yesterday’s edition of my local newspaper.

There are a few points that really need to be made about the Associated Press story on Wells Fargo.

First, Wells Fargo did not ask for TARP money, nor did it want to accept TARP money. On Oct. 13, when then-secretary of the Treasury Henry Paulson summoned the CEO’s of nine of the nation’s largest banks, he basically forced each of their banks to take money. The government was looking for a way to pump money into the economy and it figured by purchasing bank stock it could get a big multiplier effect on its investment. For every dollar of additional bank capital, the theory goes, we should be able to get an additional $10 in bank lending.

Since the federal government controls their charters, these bankers had no choice — participate in this Treasury experiment or risk additional regulatory scrutiny and ultimately loss of charter. After the meeting, Wells Fargo Chairman Dick Kovacevich made the nature of the meeting clear. The meeting was particularly troubling to Wells Fargo because it had just announced it would purchase Wachovia without government assistance and now the government steps in and says it will provide assistance, whether Wells Fargo wants it or not.

The public would understand the situation much better if the media did a better job reporting that Wells Fargo didn’t need or want the money. The public would be better served if the media explained that the initial TARP money was about stimulating the economy, not about propping up banks, (at least in the case of Wells Fargo).

The second point is, the government bought preferred shares in Wells Fargo; it didn’t give Wells Fargo anything. Treasury will get dividends from those shares, and ultimately, the government will sell the shares — most likely at a profit. So any implication that the government gave Wells Fargo anything is completely off base.

The third point is, there is nothing wrong with a company hosting a recognition event. Rewarding and motivating employees is good business. Stories like this one, however, are more about promoting envy and class warfare than they are about examining business practices.

Here is the statement Wells Fargo issued after publication of the AP story:

Today’s Associated Press story about Wells Fargo’s recognition events is intentionally misleading. The event is not a “junket” for executives but a four-day business meeting and recognition event for hard-working team members who made homeownership achievable and sustainable for borrowers across the nation. In 2008 alone, the team members who were invited to this event and their colleagues produced $230 billion in mortgage loans for U.S. homeowners.

Through all economic cycles, our recognition events have been an important part of our company’s culture. Late last year, we cancelled recognition events for 2009 except those where the financial commitment was so great that no meaningful savings would occur by cancelling these events. We had scaled back the mortgage event, but in light of the current environment, we have now decided to cancel this event as well. We do not plan to have any other recognition events this year.

The Associated Press story also misleads readers by implying Wells Fargo used the government’s investment to pay for these events. As we’ve said before, we’ve used the government’s investment to lend to creditworthy customers and to help homeowners avoid foreclosure.

Since credit began contracting 18 months ago, Wells Fargo has made almost half a trillion dollars in new loan commitments and mortgage originations. Last quarter alone, we made $22 billion in loan commitments and $50 billion in mortgage originations. That’s more than $70 billion or almost three times the amount of the U.S. Treasury’s investment in Wells Fargo — which has begun to benefit from our performance through the dividend we will pay to the Treasury this quarter.

 

A legislator’s view on private contracts

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Governmental intervention is so nearly axiomatic right now that propounding laissez-faire sounds novel if not outdated. But David Senjem (R), minority leader of the Minnesota Senate, can’t really see why he or his fellow legislators should tell independent bankers how to work through the current economic situation. Here are excerpts of what he told about 55 Minnesota bankers at a meeting hosted last week by Independent Community Bankers of Minnesota:

“As we think about this session, it’s to me all about the proper role of government, which is to do for people what they can not otherwise do for themselves. A lot of this has to do, more recently, with foreclosure and what we’re going to do about it, and what is the role of government in that? Our caucus remains steadfast in our view that the role of government is best when we keep out of private contracts.

You folks have been involved in private contracts with people; you lent them money…I’m not sure that we need to invade that contract. We trust you. You know what’s good for your communities; you know what’s good for your bank. You know what the future is and how to get there, and the very idea that we would invade that contract, that trust that you have between yourself and your client—even in the worst of times—that’s not our role. That’s not where we belong. I full well trust the bankers I know in southern Minnesota, that you are good people, and that you will make things work. You don’t need the influence of government—particularly in the state of Minnesota—to tell you how to do it.

…We ought to keep out of your business. You’re all legal and you operate within the framework of good legal and ethical practices. Beyond that, let it go; we don’t need to invade that space, and I hope we won’t.”