Zions Bank Largest Recipient of Welfare in Utah History
By Paul Beebe
The Salt Lake Tribune
Published: December 11, 2010 05:23PM
Cast your thoughts back to fall 2008, when the financial crisis was at its peak.
At the time, authorities from then-Treasury Secretary Henry Paulson on down to community bankers across Utah believed the nation’s financial sector was perilously near a meltdown after the collapse of investment bank Lehman Brothers.
Two years later, the Federal Reserve has revealed just how deeply it was involved in the crisis by releasing details of the $3.3 trillion in near-zero-percent-interest emergency loans and other commitments it made from December 2007 to this past July to stave off chaos and restart the economy.
In Utah, the amount injected by loans and loan commitments into Utah-based financial institutions was a staggering $6.6 billion — more than half the size of the current state budget of $11.9 billion — according to the central bank.
But there was more.
Would you call this corporate welfare? Assuredly. The banks would have failed without it. And these are the Republican leaders of the state who bemoan any handouts to the poor.
Zions Bank received $1.4 billion of TARP money and another $5.2 billion in short term notes. How’s that for a welfare handout? And then they hoarded it instead of lending it, and loaned it back to the government at a profit.
Corporate welfare is acceptable to them, but they consider welfare to the people as profligate. These are the guys who want to block unemployment compensation to those who are living from paycheck to paycheck and instead support extending tax cuts to the rich. “Give it to us instead,” is their selfish cry.
The bankers are a half-dozen four-letter words, and yes, that includes Zions Bank (the Simmons family and their stockholders.) That’s right, $1.4 billion of welfare, and another $5.2 billion in short term notes, welfare that they deny to others.
Why can’t they accept bankruptcy? Over the years they have aggressively and cold-heartedly forced thousands of others into bankruptcy and wrenched thousands of unearned income out of their hard pressed customers. They have been about as good as anyone at getting blood out of turnips. Four-letter words by the dozen to them. The ——– (fill in the blanks.)
The welfare to the banks amounts to fully one-half of the Utah State budget, and we can’t find enough to pay our teachers a decent wage and lower the student-teacher ratio.
Capitalism has become government by the corporations, for the corporations, and to hell with the people. It’s a trickle up economy. Rip off the poor with low wages, and collect huge wages, bonuses, and profits at the top, and if things don’t go well—create new money and get it in the hands of the rich so the cycle can go on again. Poor people have only one purpose—feed the rich.
The music will eventually stop, but there will never be justice.
Not included in that figure was $700 billion that went to banks, insurers and auto companies as part of the Treasury Department’s Troubled Asset Relief Program, signed into law in the last weeks of President George W. Bush’s administration. Three Utah banks — Zions, Cache Valley and Medallion — received more than $1.4 billion in TARP money.
Together, the Fed and the Treasury Department have infused $4 trillion into the U.S. financial system since the recession began in 2007 — including $8.1 billion in Utah. That figure would have been higher if more Utah banks had defied the “bailout” stigma that became attached to TARP, several bankers say.
“There are a number of banks that could have done the same thing,” said J. Gregg Miller, CEO of Logan’s Cache Valley Bank, which received $4.8 million in TARP money in December 2008 and $4.6 million last December.
“Once you were in, [the Treasury Department] came back and said, ‘Here take more.’ We’d already suffered the bad publicity, so why not? You want all the equity you can get” when the economy is bad, Miller said.
Howard Headlee, executive director of the Utah Bankers Association, said the belief among lenders was that the industry was in uncharted waters. Like the national recession, the business downturn in Utah was the worst since the Great Depression.
“The risk of the collapse of our financial markets was real, and it was understood by everyone involved,” Headlee said.
But whether the government’s outlays, which helped to expand the budget deficits, were a smart move has yet to play out, said Andrew Moylan, director of government affairs for the National Taxpayers Union.
“I think that they were surprising in their extent,” Moylan said. “In retrospect, it’s hard to say whether or not they were the move that prevented us from tipping into another Great Depression or they were unwise.”
Four Utah banks — MagnetBank, AmericaWest, Barnes and Centennial — have folded since January 2009 because of real estate, land and development loans that went bad. A fifth bank, credit card lender Advanta, failed this year when its default rate reached 20 percent.
By far, Zions Bancorp and its Zions Bank subsidiary were the biggest Utah-based financial institutions to benefit from the government’s actions.
It’s no secret Zions Bancorp received $1.4 billion in TARP funds in 2008. The money was used to bolster the regional bank’s capital reserves.
But until the Fed released details last week about its loans and other transactions it made under an assortment of programs, it wasn’t known that Zions Bank also received 17 loans from the central bank. The aggregate amount was $5.2 billion.
Zions Bank has repaid the Fed loans, with interest. Zions Bancorp hasn’t said when it will repay its TARP money to the Treasury Department.
The Fed’s loans to Zions Bank were channeled through a temporary program called the Term Auction Facility (TAF). Started in 2007, TAF was one way for the Fed to provide short-term liquidity to commercial banks. The Fed would make TAF loans only to banks judged financially sound.
The average loan of about $300 million was used to support loan demand, which was unusually high at the time, said James Abbott, who runs Zions Bancorp’s investor relations programs.
With the recession worsening, business clients who typically borrowed about 40 percent of their credit lines began to increase their debt levels further. Abbott said clients did so in order to have enough cash on hand to pay bills should sales fall off.
Since then, the appetite for loans has diminished. Abbott said Zions Bancorp is parking about $1 billion a day at the Fed until businesses and consumers resume borrowing as a way to avoid tying up its money in, say, low-yield securities.
First Utah Bank borrowed $55 million from the Fed via eight TAF loans. The Salt Lake City-based bank sought the loans because the Fed was charging only abut 0.25 percent at the time.
“It was very inexpensive money,” First Utah President David Brown said. “We weren’t expanding our balance sheet [by making additional loans]. For the most part that money was used for liquidity.”
Bank of American Fork and Draper-based Advanta borrowed $619 million and $30 million, respectively. Bank of American Fork used its proceeds to make fresh loans.
“It wasn’t that we made loans because the money was available. We were making loans anyway, and we simply were looking for the cheapest source of money for those loans,” said Richard Beard, the bank’s president.
It isn’t clear how Advanta used the money it borrowed. The Utah Department of Financial Institutions closed the insolvent industrial bank in March.
Select Portfolio Servicing, a Salt Lake City company that accepts mortgage payments and attempts to collect on bad loans for banks and other clients, received $28.2 million from the Fed to make modifications to foreclosed mortgages. The central bank has committed $750 million to Select Portfolio.
It is uncertain whether Select Portfolio will draw on more of the Fed’s commitment or how many modifications it has made. Representatives of the company didn’t respond to a request for comment.
The Fed committed $870,334 to another mortgage servicer, University First Federal Credit Union, in Salt Lake City. None of that money has been disbursed, marketing manager Greg Silva said.
“The fact is, we’ve had few foreclosures,” Silva said.
Headlee, who leads the state bankers group, is a vociferous critic of detractors who have labeled the government’s actions to stabilize the financial system as a bailout.
“The context is important. It wasn’t only a bailout. It was an attempt to stimulate and provide liquidity and credit to the economy, and they generally chose to do it through healthy institutions,” he said.
Cache Valley Bank’s Miller agrees. Had his bank not consented to take TARP money, it would have run the risk of being seen as weak.
“In talking to our regulators, they all are of the opinion that banks that could not get this capital would be the ones that would be on the bad list and suffer serious consequences,” Miller said.
“They would be viewed as lesser-quality banks.”
pbeebe@sltrib.com
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Federal infusions of cashto Utah lenders
Zions Bancorp • $1.4 billion, Troubled Asset Relief Program (TARP)
Medallion Bank • $21.5 million, TARP
Cache Valley Bank • $9.4 million, TARP
Zions Bank • $5.2 billion, short-term loans
Bank of American Fork • $619 million, short-term loans
First Utah Bank • $55 million, short term loans
Advanta Bank • $30 million, short term loans
Select Portfolio Servicing • foreclosure assistance, $750.1 million committed, $28.2 million disbursed
University First Federal Credit Union • foreclosure assistance, $870,334 committed, $0 disbursed
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