"I will say this very bluntly: We were told to take it. Not asked, told. 'You will take it,' " Davis said. "It doesn't matter if you were there on the first night and you were told to sign on the dotted line before you walked out of the office, or whether in the days that followed, you were told to take it."
Davis went on to say in his talk that while government officials marketed the program as a way to entice banks to lend again, TARP actually was designed to give solid banks like U.S. Bancorp some extra cash to buy weaker banks in the system. U.S. Bancorp did just that late last year when it acquired the assets of two failed banks in California, Downey Savings and Loan and PFF Bank & Trust.
"We were told to take it so that we could help Darwin synthesize the weaker banks and acquire those and put them under different leadership," he said. "We are not even allowed to mention that. ... We were supposed to say the TARP money was used for lending."
However, Davis is just one of many "traditional" bankers that is waking up to discover that the Treasury/Fed programs were not designed with them in mind. Rather, they are being dragged into the mindless nationalization debate that is primarily focused on saving the investment banks and the competing "originate to distribute" (via securitization) model.
Davis woke up in Minnesota to find he had become part of the now hated Wall Street banking cabal. The stock price of his bank has fallen from a high of $35/share in October to $11 today. He also learned that when he was told to take the money, he was also supposed to stick to the story. His lawyers and PR people backtracked today to minimize the damage.
Tuesday afternoon, a U.S. Bancorp spokesman said Davis had misspoke, and meant that because the largest banks in the country took TARP money, U.S. Bancorp and others were forced to do so as well, for competitive reasons.Clearly the Treasury feels like it is essential to get the securitization part of the credit system running again, but traditional bankers aren't willing to take one for the team -- especially if it means getting railroaded into a nationalization scheme. As a Midwesterner, Davis seems befuddled by the Treasury and the political morass he was clearly not expecting.
In correspondence with the SEC, USB discussed its policy regarding originate to distribute. Other then GSE mortgages, they originate to hold.