TARP Lawyers to Banks: Think Twice About Taking Government Cash

TARP Lawyers to Banks: Think Twice About Taking Government Cash - 2-4-2009

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HEADLINE NEWS:

TARP Lawyers to Banks: Think Twice About Taking Government Cash
Zach Lowe

http://www.law.com. February 4, 2009
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EXCERPT: With President Barack Obama and Treasury Secretary Timothy Geithner reportedly promising to attach more strings to federal bailout money, we thought it would be a good time to speak to some of the lawyers who are advising the dozens of financial institutions keen on applying for a chunk of the fresh $350 billion in Troubled Asset Relief Program funds Congress released last month. Those lawyers were nearly unanimous in saying that banks of all kinds are becoming more cautious about participating in TARP, with some even backing out of the program after Treasury has approved them for funding. And in some cases, lawyers say they are actively advising institutions against seeking the bailout money. "There are going to be more and more institutions that just back out of it," says Raymond Gustini, a partner at Nixon Peabody who has advised several institutions. "What started out as virtually unfettered access to capital has become a politically sensitive issue." Among the banks' concerns: limits on executive compensation and government oversight that could extend to tracking how every TARP dollar is spent. One clause in the general TARP agreement says Congress can amend the lending terms at any time, and that a participating bank must adhere to any such amendments, including compensation rules and loan requirements, Gustini and others say. "That pushed a lot of banks away from the deal," says William Luedke IV, a Houston-based Bracewell & Giuliani partner who has met with boards from about 50 financial institutions interested in applying for TARP money. Of those, he says, only 15 have followed through and "the interest is tapering off" as Obama, Geithner and others talk openly about increased oversight.

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