A reader has recently corrected a claim I made on a recent blog entry regarding GE Capital. I would like to bring this error to your attention and make a few comments.
In my post, “Should GE be a AAA company,” I said “GE Capital isn’t even a bank. The FDIC only deals with depositary institutions. Are you kidding me? The US Government is obviously willing to do anything to bail out financial institutions at this point. Forget rules and regulations. Just give them the money.”
The first statement is actually not correct. Looking at the FDIC Institution Directory yields two results:
Now, I certainly have to eat humble pie for not getting my facts straight here. My basic question as to GE’s worthiness of a AAA rating remains. However, this information does cast the TARP in a new light that I think bears remembering. Genworth Financial is one of man financial institutions that is trying to buy a small depositary institution in order to be eligible for funds under the TARP.
Reuters reported the following yesterday:
Life and mortgage insurer Genworth Financial Inc said on Sunday it applied for capital under a U.S. government program, after reaching a deal to buy a bank, bringing it under federal regulation.
With the move, Genworth joins Hartford Financial Services Group Inc, a large property and life insurer, in seeking to change its regulatory status in order to participate in the Treasury Department’s $700 billion Troubled Asset Relief Program (TARP).
Genworth declined to say what amount of capital it was seeking.
Hartford on Friday announced it was buying a small savings and loan, bringing it in line with a federal financial regulation requirement, and thereby making it eligible to raise up to $3.4 billion from TARP.
Genworth said on Sunday it had reached an agreement in principle to buy InterBank fsb of Maple Grove, Minnesota and filed a savings and loan holding company application with the Office of Thrift Supervision, a federal regulator.
InterBank is a community bank with about $1 billion in assets, according to its website.
Richmond, Virginia-based Genworth has been badly battered by investment losses, and concerns that it would run short of capital. Its shares have fallen from $25.45 at the beginning of the year, to as low as $1 last week.
So, here is Genworth buying an outfit for $10 million in order to get in line for bailout funds of as much as $3.4 billion. This seems like a fair trade to me and I would do the same if I were in Genworth’s position. Ostensibly, this would put GMAC in line for cash as GMAC Bank is also a depositary institution (GMAC is only partially owned by General Motors).
The question remains whether this is a good and systematic approach to providing relief to the financial services sector. From my perspective, it is not — and the Genworth-Hartford end-run shows why.
Source FDIC Institution Directory – FDIC website
Originally published on November 17, 2008 at Credit Writedowns and reproduced here with the author’s permission.