The Gang That Couldn't Loot Straight

On Saturday, the New York Times ran an article, by Mike McIntire, discussing the progress of the $700 billion bailout plan, which received Congressional approval in October. The purported purpose of the bailout was to stimulate lending and to assist troubled homeowners. To date, approximately $350 billion or half of the approved funds have been disbursed. Essentially, the NYT reported that many of the banks who received the taxpayer funds have no intention of lending it. Per the NYT:

At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money. “Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”

In light of Whitney National's less than stellar performance over the last four quarters, Mr. Hope's unwillingness to lend may well be in everyone's best interest. Per the FDIC's Institutional Database:

As the above table demonstrates, charge-offs and non-accruals have skyrocketed over the last 4 quarters. Due to the recent deterioration of Whitney's loan portfolio, it's unlikely that additional lending was ever one of Hope's options. Whitney National's loans are a mix of commercial and residential loans that were originated in Florida, Alabama, Lousiana, Texas and other areas that have seen marked residential real estate value declines. Moreover, Whitney National has exposure to the flagging petroleum industry due to loans made to oil/gas exploration support companies. It's very likely that Whitney's real estate assets are overvalued, so it would be wise for Whitney to hoard the $300M to maintain the FDIC's required capitalization ratios for solvency in future quarters. As a taxpayer, the last thing in the world that I want is for Whitney National to make another loan. Well, it's almost the last thing. The only thing that would be worse is if Whitney did something completely irresponsible like paying a dividend that exceeded its net income for the quarter:

As the above excerpt from Whitney's most recent 10-Q statement demonstrates, this is exactly what they did. Now, I'm no banker, but if over 2% of my "assets" were in non-accrual status I'd be thinking about conserving every scrap of cash that I could lay hands on. Instead, Whitney National bank paid out nearly three dollars for every dollar it made it made in the third quarter. In other words, Whitney squandered the meager profit it earned in 3Q and then weakened itself further by dipping into reserves. In my opinion, this is recklessness bordering on retardation. If your house is on fire, do you water the garden?

To be fair, this dividend was paid out prior to Whitney National's receipt of the $300M bailout. However, it is difficult to fathom doing such a thing unless you expected some type of rescue. On November 19th, Whitney announced that they would be reducing their dividend for the 4th quarter to a mere $0.21/share, which is only a shade under double its Q3 EPS. Considering the economy is worsening daily and Whitney has to pay 5% on it's $300M bailout (about $0.06/share), it isn't likely that Whitney is going to double up on its net income. Thus, bailout money will be used to pay shareholders, which is a flagrant wealth transfer from the taxpayer to the investment class.

In summary, the NYT lambasted Whitney National Bank for proclaiming its unwillingness to lend the $300M provided by the US Treasury's bailout program. After closer inspection, it turns out that quality lending isn't exactly Whitney National's strong suit, so the public is best served by Whitney's inaction. However, Whitney National has blatantly abused its subsidy by paying dividends in excess of earnings and weakening its capital structure in the process. It is not the US taxpayer's, the FDIC's, or the Treasury's responsibility to protect shareholder's dividend streams, so if this doesn't constitute looting, I'm unsure what does.


  1. Looting: It's what's for dinner.

    Fuck, are you surprise? Nortel just went under after the CEO (years ago) took several thousands from me-after the asshole the day before said "everything was fine". Piss on these dicks.If I'm lucky enough to catch one, I'll beat the living crap out of them and go to jail with a smile on my face-after I spend time with his daughter.

    I hate to break it to you OSR but the old Wall Street game ain't gonna be played no more.
    Sorry, don't mean to get too emotional, but this is totally bullshit, and you do not sound stupid. Wake up and smell the coffee.

  2. Forgive me for intruding again, but I see you tend not to comment on other comments, especially the in last post that sounded rather well done. Do you want to engage or do you just want to rant? Do you want to find out what's wrong or do you already know? If you do, please give us mere mortals the privilage of telling us.

  3. Sorry for the delay, I didn't think anyone was looking at this thing. Believe me, brother, I've got an inkling as to what's wrong and just how wrong it all is.