Six months after Washington rescued Wall Street, exasperated banks insist they want to leave the lifeboat.
Jamie Dimon, the chief executive of J.P. Morgan Chase, said yesterday that he regrets accepting $25 billion in federal aid. He called the money "a scarlet letter," pledged quick repayment and renounced further borrowing from the government, saying, "We've learned our lesson about that."
But the company, which announced a $2.1 billion first-quarter profit yesterday, has not entirely had it with Washington. J.P. Morgan said it plans to continue using a separate federal aid program through which it has borrowed more than $40 billion.
Other large banks are attempting the same combination of breakup and embrace. Even as they clamor to exit the most prominent part of the bailout program by repaying government investments, firms continue to rely on other federal programs to raise even larger amounts of money.
The Treasury Department so far has invested slightly less than $200 billion in banks. Meanwhile, the Federal Deposit Insurance Corp. has helped companies, including J.P. Morgan, borrow more than $336 billion through the end of March, by guaranteeing to repay investors if the firms defaulted. And financial firms hold more than $1 trillion in emergency loans from the Federal Reserve.
Goldman Sachs declared a "duty" to repay the Treasury after posting a first-quarter profit. The chief executives of several large banks at a meeting last month urged President Obama to accept repayments. But no company has similarly pledged to leave the government's other aid programs.
The explanation appears to be simple: Only the capital investments by the Treasury require the companies to make significant sacrifices, such as restricting executive pay.
"The capitalization efforts are actually the most important and are doing the most good, but they come with strings attached, and because they come with substantial strings attached they are getting the most push-back from the banks," said Douglas Elliott, a financial policy expert at the Brookings Institution. The other programs "have no strings attached," he said. "What's not to like about it from the perspective of the banks?"
The Treasury and the FDIC announced their rescue programs on the same day in October. The Treasury pledged to invest up to $250 billion in financial firms. The FDIC said it would help companies borrow up to $939 billion from private investors.
The FDIC's promise to repay investors if a bank defaults allows banks to offer those investors interest rates several percentage points below prevailing market rates. A reduction of one percentage point in the interest rate on $1 billion in debt saves $10 million in interest payments each year. The program was even more valuable for banks that could not find investors at any price, which was particularly common in the fall.
Initially, neither the offer from the Treasury nor that from the FDIC came with significant strings attached. Public anger about the lack of conditions prompted Congress to impose tighter restrictions in February -- including stricter limits on executive pay and on hiring of foreign workers, and increased disclosure requirements. But the changes applied solely to recipients of Treasury money. The law did not mention participants in the FDIC program or those who borrowed from the Fed.
Bank executives have argued since February that the more onerous terms would hurt their firms and therefore damage the economy. The healthiest banks, however, are now in a position to do more than complain. They want to give the money back.
J.P. Morgan's profitable first quarter is the latest indication that some banks are beginning to overcome the weight of continuing loan losses. Goldman Sachs and Wells Fargo have also reported large first-quarter profits.
The three companies all have benefited from massive government assistance: A total of $60 billion from the Treasury and another $68 billion borrowed with FDIC help. The Fed has declined to disclose the names of its borrowers or the amounts of its individual loans -- something banks also are reluctant to disclose -- but financial analysts say it is highly likely that every major firm is on the list.
The federal intervention helped protect all of the major banks from huge losses and possible collapse last fall, according to financial analysts. Now, the availability of cheap government funding is goosing profits. Banks make money from the margin between the cost of getting money from investors and the price charged to borrowers. The low cost of government funding has fattened that margin.
A ‘duty’ to repay Treasury
Goldman Sachs Chief Financial Officer David Viniar said the company now has a "duty" to repay the Treasury's $10 billion investment in the firm.
Wells Fargo has expressed a similar determination. The company's chairman, Richard Kovacevich, called the government's restrictions on aid recipients "asinine." The companies must get government permission to repay the money.
But none of the companies have expressed a similar determination to repay the money borrowed through the FDIC, or to forswear borrowing from the Fed.
J.P. Morgan said it planned to continue borrowing through the FDIC program. A Wells Fargo spokeswoman did not return a call for comment.
Dimon said yesterday that he regrets accepting the Treasury investment because J.P. Morgan did not need the money. The firm took the funds because the government asked large banks to form a united front, he has said. The FDIC program is a different case because the company is borrowing money that it wants.
J.P. Morgan has been one of the most prolific borrowers, using the FDIC program more than a dozen times to raise more than $40 billion, according to SNL Financial. The company most recently raised $2.3 billion during the first week of April.
Still, to underscore its independence, J.P. Morgan now plans to sell dollar-denominated debt without government backing for the first time since August -- about $3 billion in 10-year bonds. The company in January sold euro-denominated 10-year debt without government backing.