GOP Rep. Steve LaTourette, one of the consistent oppponents of socialism in the House, reports:
U.S. Rep. Steven C. LaTourette (R-OH) says he fears that John Dugan, Comptroller of the Currency, steered $7.7 billion of taxpayer bailout money to his former client, PNC, so it could buy National City Bank.
LaTourette today sent a letter to Treasury Secretary Henry Paulson outlining his concerns and asking for an investigation. He also asked House Financial Services Committee Chairman Barney Frank (D-MA) to hold a hearing on the Fed’s decision to have one regional bank (PNC) gobble up regional bank (National City) using bailout money. LaTourette is a senior member of the Financial Services panel.
The Pittsburgh-based PNC, which bought National City on Friday at a fire-sale price with federal bailout money, was one of Dugan’s clients just before he was sworn in as Comptroller of the Currency in August 2005, LaTourette said. Prior to becoming Comptroller, Dugan was a partner at Covington and Burling, a DC law firm that specializes in banking regulation.
“I am very concerned that the Comptroller first deprived bailout money to National City Bank and then orchestrated its sale to his former client, PNC. The officials at PNC have made it very clear that they were only able to buy National City because they got a $7.7 billion handout from the government,” LaTourette said.
The federal infusion of cash for PNC marked the very first time that the Treasury has taken an equity stake in a regional bank. On October 14, Treasury announced it was using up to $250 billion of federal bailout money to take an equity stake in 9 banks, including $10 billion for Goldman Sachs, the former employer of Treasury Secretary Hank Paulson. LaTourette said no regional banks, including National City, were included in this first round of bailouts for banks, even though National City was the seventh largest bank in the nation and was interested in pursuing bailout funding.
On Friday, PNC became the first regional bank to be propped up with government help, and that $7.7 billion infusion allowed PNC to buy National City Bank. About a week before National City was forced to sell itself to PNC, OCC head Dugan told the head of National City Bank, Peter Raskind, that it shouldn’t expect to get a slice of the $250 billion being pumped into banks. LaTourette said the Wall Street Journal reported that Dugan was “heavily involved” in the sale of National City to PNC, and that Dugan was “pushing for a deal by (last) Friday.”
“By all accounts, this sale was being forced onto National City by federal regulators,” LaTourette said. “This was supposed be a $700 billion rescue package, and instead it’s being used to kill a Cleveland bank and kill local jobs. This is what happens when you have chickens guarding the hen house.”
The Office of the Comptroller of the Currency, or OCC, is the nations’ primary banking regulator. It operates under the Department of Treasury.
LaTourette, who opposed the $700 billion bailout, said he was concerned all along that “someone could play God” and decide which troubled assets to purchase.
“It’s very clear that the Treasury and the OCC are hand-picking winners and losers, and National City came out on the losing end. I think it’s entirely fair to pose the question about whether PNC got favorable treatment because of their relationship with the nation’s top banking regulator,” LaTourette said. “Some may argue that National City was already gravely ill, but make no mistake, Paulson and Dugan put the nail in the coffin.”
LaTourette said National City’s stock was at about $5 a share when word of possible bailout package began circulating. A rough draft of the $700 billion bailout was unveiled on September 28, a Sunday. The next day, National City’s stock plunged 63 percent and closed at $1.36 a share. The stock has since rebounded to just over $2 a share.
LaTourette said he is also concerned that Paulson and Dugan may have violated the rules of the troubled asset program contained in the $700 billion bailout. LaTourette said he believes PNC was only eligible to receive an amount of bailout money equal to 3 percent of its risk-weighted assets, but the $7.7 billion bailout for PNC is closer to 6 percent. LaTourette said the bailout law stipulates that Treasury can purchase a maximum of 3 percent of a bank’s risk-weighted assets under the program rules. LaTourette said some assets are deemed riskier than others and must be backed by more capital, so they are risk-weighted.
The question isn’t whether we’re slouching toward socialism. It’s how fast.
We’re Screwed ’08.