Wednesday, July 29, 2009

How Much Have We Paid To/Saved For Payout to Banksters?

The FDIC bailout is destined to save banks $24 Billion according to Paul Kiel at ProPublica. (Emphasis marks added - Ed.)

We keep you up to date on how many taxpayer billions [1] have gone out to the nation’s banks (and insurance, credit card and auto companies) via the $700 billion TARP [2]. But the Wall Street Journal ran the numbers [3] on a separate federal bailout program, this one run by the FDIC, and found it will save eight big U.S. banks “about $24 billion in borrowing costs during the next three years.”

Of course, the program was launched to save banks billions—or put another way, it was designed to make their debt affordable. Banks under the program (called the Temporary Liquidity Guarantee Program) issue debt guaranteed by the FDIC. Since the debt has government backing, the interest rate is lower than the market rate. And at the height of the financial crisis late last year, market rates were remarkably high. The Journal‘s analysis focused on the eight biggest participants in the program and is based on the difference between the FDIC-backed rate and the going market rate at the time the banks issued debt under the program.

As we reported last month, one company that has benefited from this program is General Electric [4]. The Journal calculates that its savings “likely will reach $3.3 billion,” a total GE disputed. (A spokeswoman said it was “something much less,” but evidently didn’t provide an estimate.)

And one lucky guy at Citigroup (remember how successful Bob Rubin's old group was at playing the energy market?) says he's worth $100 Million bonus - and is demanding it. And, of course, Citigroup will pay. "Citigroup (C) is considering paying a $100 million bonus -- to one guy. This is the same Citigroup that received $45 billion in bailout money. The same Citigroup that will soon be 34% owned by the U.S. government. The same Citigroup that has lost 95% of its share value since 2007. Citigroup is in no position to be awarding bonuses of $10 million - let alone adding another zero to that amount. So why is it mulling such a colossally dumb move? Because the guy demanding it is probably the bank's most valuable employee. Enter Andrew Hall. He's a rock star, a legend among banking circles. He makes a boatload of money for Citigroup as head of Phibro, the bank's energy-trading unit. The Wall Street Journal calls Phibro a secretive operation, housed in a former Connecticut dairy farm, that "occasionally accounts for a disproportionate chunk of Citigroup income." Phibro made so much money for Citigroup last year that Hall got a $100 million bonus (His bonus is based on Phibro's profits). Phibro was the main source of the $667 million in pretax revenue Citigroup received in commodities trading, the Journal reported. And the unit is doing so well this year that Hall may be in line for a similar amount. Even though it's only July, it sounds like Hall is pressing Citigroup for confirmation of the bonus. He's threatening to leave the company, reports say. So here's Citigroup's dilemma: Keeping Hall would likely help the company climb out of the hole it's in. But can it afford to spend $100 million? And will the U.S. government allow it? That will depend largely on the opinion of Kenneth Feinberg, the new pay czar appointed to oversee compensation at the bailed-out banks. Hall already has so much money that he owns a castle in Germany called Schloss Derneburg (pictured here). He's a huge art collector, and caused a bit of a ruckus in Southport, Conn., by commissioning a six-ton, 80-foot-long sculpture of concrete and steel on his front lawn. That doesn't play well with Southporters." And what are the real numbers in bank lending?

Lending continues to slow as bankers and borrowers refrain from taking risks, in a bearish sign for the economy. The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter, and more than half of the loan volume in April and May came from refinancing mortgages and renewing credit to businesses, not new loans, an analysis by The Wall Street Journal shows.

Suzan __________________

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