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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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February 5, 2009 4:10 PM ET
The Treasury Department under Secretary Henry Paulson paid 44% more for bank securities than they were worth under the bailout last year because it didn’t take into account the risks of the particular stocks and warrants, a congressional watchdog found. Treasury paid $254 billion for shares of preferred stock and warrants from more than 200 financial institutions and got assets worth about $176 billion, Elizabeth Warren, head of the Congressional Oversight Panel, told the Senate Banking Committee today. Mr. Paulson, who was part of the Bush administration, had said that Treasury was injecting capital into banks by purchasing assets at then-current market value. Instead, the government “paid a uniform price” for the securities regardless of whether one institution posed a greater investment risk than another, she said. The panel’s findings “at least raises the possibility” that Mr. Paulson “was not entirely candid,” said Ms. Warren, a Harvard Law professor. “Treasury simply did not do what it said it was doing.” She compared Mr. Paulson’s methods to paying the same amount for a Picasso or Rembrandt painting as one would for art by lesser-known painters. Treasury “has failed to delineate a clear reason for such an overpayment,” Ms. Warren said. The senior Republican on the committee, Richard Shelby of Alabama, suggested that Mr. Paulson “said one thing and did another.” Efforts to reach Mr. Paulson for comment were unavailing. Separately, Treasury under Mr. Paulson hired a number of employees from banks that were receiving funds under the Troubled Asset Relief Program, creating “incestuous” relationships and potential conflicts of interest, Mr. Shelby said. The special inspector general for TARP, Neil Barofsky, told the committee that he was looking into possible conflicts at Treasury. The Bush administration hoped that injecting capital into banks would loosen credit for businesses and consumers, a promise that hasn’t yet materialized. Among the largest recipients have been Citigroup, J.P. Morgan Chase, Wells Fargo and Bank of America. The Senate released the second $350 billion of TARP funds last month for use by the Obama administration. Some senators have said that when that sum is exhausted, the administration will have to come to Congress to ask for another $300 billion. However, the public and Congress are outraged with the way the program was administered by Mr. Paulson, a senator said. “There will be no additional funding for this program without airtight assurances that it will be better managed,” said Evan Bayh (D-Ind.). A dozen senators of both parties today blasted Mr. Paulson’s administration of the program, a rare show of bipartisan unity on the committee. “TARP has really become just a slush fund,” said David Vitter (R-La.). Ms. Warren’s panel, which was appointed by Congress to monitor TARP, plans to release a 700-page progress report tomorrow. It found a higher government subsidy for banks than did a similar study by the Congressional Budget Office that was released last month. The CBO found that Treasury paid $247 billion for bank stocks and warrants worth only $183 billion, an overpayment of 35%. A CBO spokeswoman declined to comment on the difference between the two studies. Ms. Warren said she has “great confidence in our numbers,” which were arrived at with the help of the Duff and Phelps valuation firm and two academics. In December, Ms. Warren’s panel asked Treasury to explain why private investors such as Warren Buffett, Mitsubishi UFJ Financial Group of Japan, and the Abu Dhabi Investment Authority were apparently getting better returns than the government on investments with the same institutions. “Is the public receiving a fair deal?” the watchdog asked. Treasury did not respond to this and two dozen other questions the panel posed. Mr. Buffett invested in Goldman Sachs, Mitsubishi in Morgan Stanley, and Abu Dhabi Investment Group in Citigroup.
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