Tags: Banks | bailed out | Troubled Asset Relief Program | making | killing | fees | paid

Bailed Out Banks Pay Themselves Huge Fees

Tuesday, 29 Dec 2009 08:43 AM

Banks bailed out by the government's Troubled Asset Relief Program are making a killing in fees they paid themselves to raise the capital they needed to repay TARP funds, collecting roughly 2.5 percent of the offering price.

“Ironically, the mechanics of exiting TARP turned out to be lucrative business for equity underwriters this year,” Matthew Toole, director of the Deals Intelligence unit of Thomson Reuters’ Investment Banking Division told The New York Times.

Here's what the post-bailout bonanza means for all the banks that helped find investors for the new shares: Bank of America's $19.3 billion offering generated $482 million in fees; Citigroup's $17 billion offering resulted in $425 million in fees; and Wells Fargo's $12.2 billion offering led to $275.6 million in fees.

According to Toole’s calculations, fees over the last two years for follow-on share offerings among financial companies in the United States totaled $5.4 billion—more than the $4.8 billion that was raised in the previous 20 years.

Because banks are ranked based on the number of deals they handle each quarter, these fees are also making the selfsame banks that had to be bailed out because of the money they are making on their own offerings.

Even though paying themselves fees is hardly the same as generating new business, when employees tally up the work they did for the year, they will be compensated for their work on these offerings as if they had worked for an outside client.

There is a long-term bubble forming in U.S. banker bonuses, says Keith McCullough, CEO of Research Edge.

“For all the bankers out there who are running this American outfit, here's my advice,” McCullough writes in Forbes. “If you can borrow short from your starving citizenry on the short end of this curve, then plug them with higher rates on the long end… have at it piggies!”

“Your boys at the U.S. government set this up for you on the silver platter for the holidays.”

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Banks bailed out by the government's Troubled Asset Relief Program are making a killing in fees they paid themselves to raise the capital they needed to repay TARP funds, collecting roughly 2.5 percent of the offering price. Ironically, the mechanics of exiting TARP...
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2009-43-29
Tuesday, 29 Dec 2009 08:43 AM
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