N.J. Bankers Approve Support, But Want Pass on Federal Intervention

The Treasury department said “nine large financial institutions already have agreed to participate in the program” without identifying them; the Wall Street Journal reported those entities include Goldman Sachs, Wells Fargo, Citigroup, Morgan Stanley, Bank of America and J.P. Morgan Chase. John McWeeney, Jr., president of New Jersey Bankers in Princeton, says Bank of America and J.P. Morgan Chase are two among his trade group’s 62 member depository institutions in the state.

James Silkensen, president of the New Jersey League of Community Bankers in Cranford, says he hears from some of his 71 member banks that the Treasury’s direct capital infusion is better than for it to buy troubled mortgage portfolios. “It is a better way to give money back to the credit markets and ease the severe tightening of credit,” he says. However, he says, “there are not many, if any, New Jersey banks that are in need of that direct injection of cash.”

Bankers, however, say that in the immediate term, owners of small and medium-sized businesses would benefit from the Federal Deposit and Insurance Corp.’s plan to provide unlimited, temporary coverage of non-interest-bearing deposits.

McWeeney says the move “will give small businesses and middle-market companies the comfort that their deposits will be safe; in most cases they have deposits that exceeded the FDIC’s limit” of $100,000.

Chris Martin, president of The Provident Bank in Jersey City, says the Treasury plan is “more of a too-big-to-fail” approach, and expects the government to let “those that aren’t worthy of this” to fail. He says a back-of-the-envelope calculation by a colleague shows that if the banking system has $7 trillion in risk-adjusted assets, the government equity investments will not cross $210 billion (at the 3 percent limit the Treasury has specified).

Martin says a long-term question rising from the government becoming a stakeholder in some banks is: “What kind of advantages does this give some of the large banks that we compete with?” On the other hand, he says those banks likely will be constrained by government requirements on a minimum dividend payout, executive remuneration and stock repurchase.

Domenick Cama, chief operating officer of Investor’s Savings Bank in the Short Hills section of Millburn, says while the Treasury moves will “generate a positive sentiment,” they will have little direct impact for most banks in New Jersey. “Most New Jersey institutions don’t have problems similar to that which plagued many other banks,” he says.

“The latest action, in conjunction with all of the other actions by the Fed and the Treasury, will improve the lending atmosphere among the larger banks,” says Jim Deutsch, chief executive officer of Team Capital Bank in Flemington and Somerville. “But the lending atmosphere among the community banks has never been bad to begin with; we have been lending through the crisis.”

As for a sustained increase in confidence levels, “I’d like to see some more signals,” says Russell Taylor, president and CEO of RSI Bank in Rahway and former chairman of America’s Community Bankers. “As far as New Jersey’s banks are concerned, this doesn’t change things too much — it may make a very, very bad situation just a little better.”

Taylor says his bank and many other community banks in New Jersey “have been lending throughout this crisis.” New Jersey Bankers and the New Jersey League of Community Banks plan an ad campaign to let people know that its members will continue to lend to creditworthy customers, he adds.

However, Taylor says most small banks in the state will not feel the need for government equity infusions, although they have expressed interest in participating in the program through their two bank associations.

“Zero,” he says, when asked about his bank’s comfort level with government equity. “I don’t want the government to be involved in our institution.”

Deutsch, too, says “it is very unlikely that Team Capital would participate in any government ownership of our bank.” Silkensen adds that his member banks mostly feel that while the present circumstances may warrant “aggressive action by the government, they would hope that it is not about getting more and more of the government in their operations.”

McWeeney says banks could choose whether or not they want government capital. “Most people prefer that on a long-term basis, the government not be involved in the direct equity ownership of banks,” he says. “But these are unusual times.”