Why are banks so desperate to get out of TARP?

Talk about ingratitude! News that two of the country's largest banks have agreed to raise billions of dollars from investors to pay back bailout loans from U.S. taxpayers seems preposterous on its face and even worse after a little thought. Citigroup has reached a deal with federal regulators to repay $20 billion, after the government sells its $25 billion stake in company stock, according to Cable News Network (CNN), and the government has agreed to a $25 billion repayment in full from Wells Fargo Bank, according to the Reuters international news service. The two banks are the largest still in the Troubled Asset Relief Program, set up by the United States to prop up the ailing U.S. financial system in 2008, and are trying to get out of the stricter regulation required of institutions that accepted taxpayer financing. The announcement coincides with meetings between U.S. President Barack Obama and bank CEOs in Washington, D.C., to discuss the future of the financial system. While it's certainly a good sign that banks are able to repay their government loans, releasing them from regulatory obligations seems counterproductive. Citigroup, for example, is expected to report a $1.1 billion loss in the fourth quarter of 2009. Maybe regulators can explain how a bank losing money can afford to pay a $20 billion bill? Wells Fargo was in much better shape than Citigroup when the financial system tanked, needed less borrowing and agreed to fewer restrictions, Reuters said. Wells Fargo plans to raise most of the money by selling additional stock, Reuters said. The Citigroup deal is more complicated, and involves the issuance of billions of shares of Citigroup common stock, now selling around $3 a share, and the sale of new securities. That's great if the instruments sell, and if the bank can afford the additional burdens. But Citigroup is losing money. What it looks like is that these institutions are desperate to get out of government-imposed restrictions on how much they can pay their top executives. Isn't that the same kind of bad management and poor accounting that got these companies into trouble in the first place?

U.S. regulators let CIT Group go under despite $2 billion investment

Why would the government allow a 100-year-old lender that provided funds to hundreds of thousands of small and medium-sized businesses fail while bailing out large sectors of the financial system? That was the obvious question Sunday when CIT Group Inc. of New York filed for bankruptcy under the weight of nearly $65 billion in debt, according to the Reuters international news service. The bankruptcy is the fifth largest in U.S. corporate history, and sidelines, at least temporarily, a major source of financing for a sector of the economy responsible for nearly half of the nation's jobs. CIT said in a statement that it hoped to eliminate $10 billion of debt in bankruptcy and emerge quickly. The company has $71 billion in assets. “The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” CIT's chairman and CEO, Jeffrey Peek, said in a prepared statement. “This market-based solution allows CIT to enter into the reorganization process well-prepared and positioned for a swift emergence. We also acknowledge our constructive working relationship with our regulators and look forward to their continued guidance as we move through this process.” Analysts said the 101-year-old company was a victim of the global credit crisis, Reuters said, as its loan porfolio suffered heavy losses and it ultimately was unable to raise enough money by selling bonds. In a letter to customers on Nov. 1, CIT said none of its subsidiary businesses, such as CIT Bank of Utah, would be affected by the bankruptcy filing. But the U.S. taxpayer is affected, since CIT received $2.33 billion from the Troubled Asset Relief Program in December. The government will only be repaid now if any money is left after banks and bond investors are paid because it is considered a preferred stockholder. Holders of CIT's common stock will not be repaid, Reuters said.