Bankers have been taking a popular beating lately after bad investments helped drag the national economy into a deep recession. And bankers that accepted Troubled Asset Relief Program, or TARP funds, seem particularly easy targets after revelations that chiefs of several major financial houses were spending funds to redecorate their offices or plan junkets at the same time they were accepting taxpayer funds to bail themselves out.
Jay Leno and David Letterman are making a living off them.
But not all bankers are created equal, say officials at two banks that operate in the Hudson Valley and upstate New York and who were authorized to receive TARP funds.
They say their institutions are making conservative decisions, which, contrary to popular perception, have allowed them to continue or even increase the volume of loans in recent months.
“It may be that some banks aren”™t lending but we are lending,” said Brian Hickey, M&T Bank”™s executive vice president for upstate New York and the Hudson Valley. M&T is a regional bank, with more than 700 branches from New York state through Pennsylvania and the Mid-Atlantic states.
M&T bank took $600 million in federal TARP funding, one percent of its risk-weighted assets of some $60 billion. Hickey said that was a conservative decision, in that most of the nation”™s largest banks took 3 percent of their net-weighted assets. “We were pretty comfortable with our capital levels and didn”™t need the funds,” he said.Â
Reflecting on the turmoil surrounding the program, he noted that the nine largest banks were required to take TARP money, while other banks could voluntarily accept the funding. The company eventually decided to accept the funding. “Part of the reason was to be competitive,” he said, saying the funds were used to improve the capital level for M&T.
But illustrating the financial turmoil, he said while bank officials were debating accepting the money customers questioned whether the bank was too troubled to take the funds. And once the TARP funds were received, customers asked if that meant the bank was in trouble. “There didn”™t appear to be a position we could take that didn”™t inspire questions,” Hickey said.
But ultimately, he said the bank put the TARP funding to good use. “It improved our capital and made it easier to lend in a very difficult time,” Hickey said. He said total loans issued by M&T in 2008 grew by 11 percent over 2007 figures. “Even more interesting,” Hickey said, was that in January 2009, M&T bank “did double the mortgage lending” of January 2008. He said while 70 percent of that mortgage lending was refinancing, “It gives people more cash in their pocket to do other things with.”Â
Wilber National Bank, applied for and was approved for TARP funds, but it is uncertain whether it will now accept the $12 million the bank is authorized to receive, said Douglas C. Gulotty, president and CEO Wilber National Bank.
The bank, headquartered in Oneonta, was founded in 1873 and now has assets of about $900 million. It operates largely upstate, with 21 branches including branches in Ulster County.
Gulotty said that in the three months since the bank was authorized to receive TARP funding, conditions have changed both economically and in terms of public perception. He said Wilber is well capitalized and does not necessarily need TARP funds. In late February, a proxy meeting will be held to consider accepting the TARP funds and if authorized, the bank”™s board of directors will decide what to do.
Gulotty said if the board directs him to do so, he will accept the TARP funds but is personally leaning against accepting the money. “Our bank doesn”™t need the funds and I don”™t want our reputation sullied by it; that is one concern,” said Gulotty. He said that “through working diligently about 15 hours a day,” he and other bank officials “demonstrated our bank can be successful with or without the TARP funds.”
Gulotty said the bank was originally encouraged by federal regulators to participate in the TARP program as “a sign of support” for the program. But he said in just 90 days, things are different. “It seems the world is changing so quickly, between three months ago or today. Now the economic conditions allow a bank to proceed without public funds.” He said the biggest change is that interest rate considerations have improved for non-TARP capital.
Gulotty, in fact, said that his on-the-ground experiences with would be borrowers in New York state is encouraging him to believe that the basics of the economy are perhaps sounder than generally realized. “I am a lot more optimistic than I was 90 days ago,” he said, adding that if the trends he is seeing prove to be accurate, the current recession could turn around significantly by the middle of 2010, instead of going all the way through that year and perhaps beyond.  Â
Hickey essentially agrees, predicting 2009 “will be tough” with significant improvement in 2010. Meanwhile, he said that in 2006 investment banks made $1.05 trillion in “asset backed security loans” such as the bundled mortgage securities now being criticized as faulty instruments. By contrast, he said, in 2008, that source of lending “was almost nonexistent. That was a trillion dollars flowing in to our economy that is gone.”
At the same time, he said, traditional lending by banks such as M&T increased by about $120 billion, but that amount was not enough to make up the difference. “Bank lending actually increased in 2008 but the reality is the Wall Street security-backed lending that disappeared was mostly done by investment banks.”
