Thursday, September 25, 2008

BB&T Chief Takes Issue With Bailout

For John Allison, the high-risk rollers on Wall Street are getting too much of the ear of Congress and having too much say in resolving the financial nightmare that they created. That's why Allison, the chairman and chief executive of BB&T Corp., submitted a 14-point letter Tuesday to all 535 members of Congress with a simple message regarding the proposed $700 billion bailout.

"There is no panic on Main Street and in sound financial institutions," he wrote. "The problems are in high-risk financial institutions and on Wall Street."

He said that it is important that "Congress hear from the well-run financial institutions, as most of the concerns have been focused on the problem companies. It is extremely important that the bailout not damage well-run companies." Allison's opinion is seconded by local community-bank officials and community-bank trade groups.

"Community bankers did not create this financial crisis, but our banks and communities are clearly feeling the impact," the Independent Community Bankers of America said in a statement. "As the fundamental drivers of local economies -- we could be in a strong position to help resolve this crisis."

BB&T, the nation's 14th-largest financial institution with $136 billion in assets, hasn't strayed far from its beginnings as an Eastern North Carolina community bank. BB&T and Allison also hold fast to a value system that extols such virtues as trust, respect, integrity, pride, reason and justice.

And compared with some of its rivals, such as Wachovia Corp., which was aggressive with alternative-mortgage products, BB&T kept its bottom line fairly immune from the recent roller-coaster ride of many major banks. BB&T posted net income of $428 million in the second quarter despite having to take a $330 million provision for credit losses in the quarter.

"Community bankers did not create this financial crisis,

but our banks and communities are clearly feeling the impact,"

- Independent Community Bankers of America

Among the points that Allison made in his letter were:

□ Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis.

□ The market-correction process eliminates irrational competitors, such as Countrywide Financial Corp., a subprime-mortgage lender that's been bought by Bank of America Corp.

□ A significant and immediate tax credit for buying homes "would be a far less expensive, and more effective, cure for the mortgage market and financial system than the proposed rescue plan" that Allison said would primarily benefit Goldman Sachs and Morgan Stanley.

□ "This is a housing-value crisis. It does not make economic sense to purchase credit-card and automobile loans as part of the bailout."

□ Protecting the banking system is an established government function. "It is completely unclear why the government needs to, or should, bail out insurance companies, investment banks, hedge funds and foreign companies," he wrote.

Allison said that he disagreed with efforts to limit executive compensation. This is not the first time that Allison and BB&T have taken a stand on a controversial economic plan. In January 2006, BB&T said that it would not make loans to commercial developers planning private projects on land seized from private homeowners by local governments.

Buddy Howard, an analyst with Equity Research Services, said that Allison is "dead right on some points, wrong on others." He particularly agreed with Allison's position on the housing-value crisis. Howard did disagree with Allison on Freddie Mac and Fannie Mae being the source of the financial crisis.

"They are convenient scapegoats, and certainly they had many problems," Howard said. "But the real culprit that led to the underpinning of the real-estate market was the huge inroads made by investment banks and other nongovernment-sponsored enterprises into the subprime market."

Edward Zajicek, an associate economics professor at Winston-Salem State University, said that many of Allison's points "are well taken."

"The government is trying to prop up two to three large investment banks at a cost to taxpayers and significant weakening of healthy commercial banks who are almost forced to take over those doubtful assets," Zajicek said.

"The role of the Federal Reserve System is to protect the soundness of the banking system, and not to bail out investment bankers."


Sources: Wall Street Journal, LEER Financial Wealth Management, Flower

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