Last Tuesday was an amusing day. It was the day Timothy Geithner, the new U.S. Treasury Secretary, announced the Obama administration’s $1 trillion plan to finish helping banks and other lenders do two things: deal with bad assets on their books, and infuse capital so lending can get going full blast again.
It’s not every day that a trillion bucks get thrown at an industry. It would seem that it would be cause for joy. But not so on Wall Street, where traders in bank stocks slapped their foreheads in consternation so hard they went blind to all the cash coming bankers’ way. The Dow Jones sank hundreds of points that day, apparently because Geithner hadn’t been specific enough about how he was going to dole out the wheelbarrows of greenbacks.
There is certainly a dichotomy about what’s happening with Treasury’s relief efforts. The nation’s biggest banks are getting billions, yet they seem to be doing little with the money beyond shoring up their own balance sheet. It’s not making its way out to borrowers who need the loans to keep their own, and our own, economy afloat.
Yet we also shouldn’t be blind to what’s happening at some of the smaller community banks that have taken Treasury money. While some have applied for capital infusions as a way to bolster an eroding capital base, others are looking to use this program exactly as it’s meant to be used.
Take, for example, First Trade Union Bank in Boston. The $450 million commercial lender just reported a terrific fiscal 2008. Net income rose more than 17 percent. Loans are up nearly 26 percent, and deposits increased about 23 percent. Its net charge off rate clocked in at just one basis point.
Last year, First Trade brought on a new president, Michael Butler, from Key Bank. Butler sees a big opportunity for his institution. He believes there are good businesses that will make good borrowers. He wants to do more to reach out to them. And he wants to invest in the bank’s infrastructure, particularly in its online tools. That will eventually help him better serve his customers and keep his operating costs in line.
But to grow his bank, Butler needs more capital. First Trade exceeds all regulatory minimums – its Tier 1 capital ratio is 8.25 percent, and its Risk-Based capital ratio is 12.98 percent – but those ratios don’t give it a lot of extra breathing room to aggressively go after new business.
The private investor market is sickly. Butler would be hard-pressed to bring in new capital through any kind of stock issuance. But he’s convinced First Trade Union Bank can find good borrowers who are being shunned by the big banks. The Treasury money, in his view, is the best way to make that lending happen.
That’s why Butler was ecstatic just a few days before Geithner’s press conference. Because First Trade had just received $11 million in federal money. That’s an investment Butler said he’s going to put to work immediately. And by that, he means real loans to real companies, not just as an accounting entry to shore up his balance sheet.
The economic stimulus plan that bounced through Congress last week will take a lot of time to start trickling into the economy. Not so federal money into banks like First Trade, or Arlington-based Leader Bank, which is putting money out immediately for home mortgages, or Pittsfield-based Berkshire Bank, which has likewise pledged its $40 million for expanded lending.
Those aren’t the kind of banks that make the Dow Jones Index soar or plummet. But they’re the kind that will stabilize the Massachusetts economy. And they’re led by the kind of bankers who must be silently chuckling to themselves at Wall Street’s inability to see the grassroots lending that’s being enabled by Geithner’s “vague” rescue plan.
