Pete the Banker on Political Quid Pro Quo: Will Obama’s Wall Street Welfare Recipients Sign Their Gubmint Checks Back Over to Him in 2012?

March 29, 2011

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Republicans are currently providing some badly needed oversight on the Money Center Banks and Wall Street Investment Bankers. The Obama Administration has provided little transparency on the extent of government aid to the industry or its relationship with several of the largest financial institutions. And by the way it looks, if you were ‘in’ with the Obama Administration, money poured your way:

[T]he concentration of the vast majority of PDFC funds was [to] … just six banks…98 percent of the funds lent by the PDFC program. (see more below)

Wall Street and the money center banks were the biggest recipients of Federal Government aid during 2007 and 2008.  

“The banking industry continues to recover from the 2007-2009 financial crisis but lending will need to pick up if progress is to continue, Federal Deposit Insurance Corp Chairman Sheila Bair said on Wednesday. Industry profits were up considerably from a year ago standing at $21.7 billion in the fourth quarter of 2010, which compares to a net loss of $1.8 billion a year ago, according to the quarterly banking report released by the agency.” Here.  

And as a result of the massive federal support and the spread between banks cost of funds and their return on invested funds,  

Source of graph here.

“…the largest 25 banks in the country are having a feast on the low borrowing costs that the Fed is maintaining (the FDIC reported that 95% of all bank profits in the fourth quarter of 2010 went to the largest banks in the United States ).” Here.

The top three Wall Street recipients of US Treasury and Federal Reserve funds and support during the crisis included Citigroup, Bank of America, and Morgan Stanley.  “Six of the largest financial firms all listed in the charts below accounted for $140 Billion in TARP money alone without accounting for massive support by the Federal Reserve and the FDIC.  “The surge has come after the five banks took a combined $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Bros. Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed’s purchases of fixed-income Here.

These large firms were also the beneficiary of massive Federal Reserve support, “After you crunch the Primary Dealer Credit Facility (PDCF) numbers, you can see through the noise. What is revealed is this: The Fed’s overnight lending to primary dealers concentrated staggering sums of government cash in the hands of a tiny circle of financial institutions. The story of PDCF lending is the story of those few financial institutions that went on to become just six banks.
 
But the concentration of the vast majority of PDFC funds was far narrower than that. Institutions that ultimately went on to become just six banks—Bank of America, Citigroup, Morgan Stanley, Barclays, Goldman Sachs, and JPMorgan—received at total of about $8.78 trillion through the PDFC program. That $8.78 trillion figure represents over 98 percent of the funds lent by the PDFC program. Here.
 
Wall Street’s biggest investment banks, rebounding after a government bailout, have completed two of their most profitable years ever, buoyed by 2010 results likely to be the second-highest ever.  The major Investment Banking institutions listed in the charts below have increased their market share in the industry since 2007 based on investment banking fees (chart 1 and 2 below).  Likewise, the major Money Center Banks have increased their share of the market based on Demand Deposits (checking account deposits held shown in charts 3 and 4 below).  
 
Chart 1
Bloomberg 2010 Global League Table Rankings: Top 5
Equity and Equity-Linked Sales, Excluding Self-Led Offerings
Underwriter
Ranking
Market Share
Fees
Morgan Stanley
1
10.4%
$7.27B
JP Morgan Chase
2
8.5%
$5.97B
Goldman Sachs
3
8.2%
$5.71B
Bank Of America *
4
6.4%
$4.48B
Citigroup
5
5.4%
$3.77B
*Merrill Lynch taken over by Bank of America
In 2010, two years after the near collapse of the largest firms on Wall Street, the top five Investment Banking firms accounted for 38.9% of the industries’ market share.  Here.
Chart 2
Bloomberg 2007 Global League Table Rankings: Top 5
Equity and Equity-Linked Sales, Excluding Self-Led Offerings
Underwriter
Ranking
Market Share
Fees
Citigroup
1
7.9%
$6.88B
Goldman Sachs
2
7.7%
$6.66B
Morgan Stanley
3
7.3%
$6.36B
JP Morgan Chase
4
7.2%
$6.23B
Merrill Lynch
5
6.4%
$5.55B
 
In 2007 the top five firms accounted for only 36.5% of the industry, collecting $86.9 Billion in fees from merger and acquisition and underwriting of stocks/bonds.  Here.   They increased their market share dramatically while receiving both Treasury TARP funds and massive Federal Reserve support.

Below are charts for the largest Retail Banks in 2006 and 2010 as measured by Domestic Demand Deposits.  In the 2010 list only three of the top five retail banks survived the 2007 financial crisis.

Chart 3 – 2010 Retail Demand Deposits (FDIC Table Four)
Company  
Number of States with
Deposit Offices
Reported Number of
Deposit Offices
Domestic Demand Deposits
(Billions)
Share of Total
Domestic Deposits
%
Bank of America
Corporation
36
6,041
916.1
11.9%
Wells Fargo Company
40
6,586
750.4
9.8%%
JP Morgan Chase & Co
24
5,227
652.7
8.5%
Citigroup
15
1,023
307.3
4.0%
US Bank Corp
26
3,056
169.2
2.2%

Here.

Chart 4 2006 Retail Demand Deposits (FDIC Table 4)
Name of Company
Number of States with
Deposit Offices
Reported Number of
Deposit Offices
Domestic Deposits**
($Billions)
Market Share*
Bank of America Corp
31
5,789
590.6
 7.9%
JP Morgan Chase
26
2,721
462.3
 7.7%
Wells Fargo & Company
23
3,216
309.0
 7.3%
Wachovia
22
3,447
370.0
 7.2%
Washington Mutual
15
2,195
210.7
 6.4%
*Total Demand Deposits = $6,500B used to calculate market share; Here. 
Based on the above two charts, the three largest Retail Banks in 2010 accounted for 30.2% of the industry market share up from their total of 22.9% at the end of 2006.  However, the failure of two of the top five retail banks, Wachovia and Washington Mutual, prompted the Federal Government to step in arranging acquisitions by Wells Fargo and JP Morgan Chase, respectively.  While these acquisitions were initiated by the Bush Administration, they were never reversed nor effectively addressed by either the Obama Administration or the Dodd Frank Wall Street Reform Bill. 
 
All of the largest firms in the financial industry have flourished under the Obama Administration given their preferential treatment, achieving massive growth relative to the smaller financial firms.

Goldman Sachs recently suggested that the Republican austerity plan to “slash” the budget by $61 Billion would lower economic growth by 2% over the next 6 months , a forecast that most economists have dismissed.  Yet the statement was clearly self serving.  Goldman, Morgan Stanley and the other Wall Street financial firms have not only received massive support through TARP and the Federal Reserve, but have also benefited dramatically by a favorable yield curve with the Federal Reserve having held the short term cost of funds well below the Banks’ return on investment in even the most conservative of investment vehicles, Treasury Bonds.  Third, these firms have all been the direct beneficiaries of the massive explosion of Federal debt (as well as State/Municipal debt).  Between 2008 and 2010 the total Treasury debt issued has been $4.5 Trillion.  Here. These large financial firms all have Investment Banking operations that deal in both the primary and secondary Treasury debt markets, buying and selling debt instruments on behalf of their clients as well as their own portfolios.  The increase in this activity over the past two years has inflated both their revenue and profit figures.  And finally, government subsidies have dramatically increased the market share of the top five largest financial institutions, despite assurances that the Dodd Frank Bill would end the threat of “Too Big To Fail”.

These are the same financial institutions that overwhelmingly supported Barack Obama during the 2008 election campaign.  In “Bought and Paid For”, Charles Gasparino outlines the campaign contributions from these firms and their executives to the respective parties. Gasparino, “Bought And Paid For”, Sentinel Publishing, p ix – xi) 

Contributions
Republicans
Democrats
Bank of America
$1.9 MM
$2.1 MM
Citi
$2.2 MM
$3.4 MM
Morgan Stanley
$2.0 MM
$2.5 MM
Goldman Sachs
$1.8 MM
$5.0 MM
JP Morgan Chase*
$2.2 MM
$2.2 MM
Total
$10.1 MM
$15.2 MM
*Jamie Dimond personally gave $4,250 to R’s; $37,850 to D’s

Goldman Sachs alone contributed nearly $1MM to the Obama Presidential campaign.  In 2009 as Gaspirino points out Goldman Sachs, the beneficiary of Obama Administration policies, earned profits of $13.4 Billion or $13,400 per dollar invested in Obama’s campaign (Gasparino, “Bought and Paid For”, p232).   This is likely a far greater return than Goldman or any of the other firms listed above could have made on competitive market investments! 

President Obama has announced plans to raise and spend $1 Billion for his 2012 Presidential Campaign.  Given his generosity to Wall Street does anyone doubt they will help assure he raises it?
 
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