The banks spend a lot of time carping about economic uncertainty. But they have no one but themselves to blame for the latest pratfall at Ally Financial.
Ally, the car lender formerly known as GMAC that was rescued after a disastrous spin down subprime lending lane, had been hoping to do an initial public offering this month but is now more likely looking at the fall, the Financial Times reported.
The firm has been aiming to sell stock this year to help Treasury pare back its huge stake in the company. The government owns 74% of Ally, thanks to the $17 billion it poured into the lender in 2008 and 2009, and naturally would like to start reducing that figure sooner rather than later.
But the offering is now likely to be delayed because the stock market has softened and, more to the point, there are questions about how much Ally and other banks will have to pay to put their foreclosure follies behind them. And for that the banks can thank their own posturing and foot-dragging.
State attorneys general led by Tom Miller of Iowa have been pushing for a global settlement that would saddle Ally and its big servicing peers – Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC) and Citi (C) – with a bill as large as $25 billion for their adventures in robosigning and unfair foreclosures and the like.
Understandably, the banks do not like that figure. Predictably, they prefer a much lower one – reportedly $5 billion, a figure that split among five big lenders would barely dent their considerable if reduced earning power.
It’s not exactly shocking to see the two sides start off with radically different views of the tab to be paid in a high-profile case like this. But after months of talks, there is not a lot of reason to believe an agreement is at hand — which is only the latest evidence that the banks serve themselves first. The rest of us? Whatever.
The cloud hovering over the banks is not going to help the sideways stock market, which is being pulled down by sickly financial shares, let alone staggering house prices.
Shaun Donovan of the Housing and Urban Development department said this month that a deal could come “within a matter of weeks.” But Donovan also called the banks’ position “unacceptable,” and recent comments from Miller suggest that Donovan’s assessment of the timing is optimistic.
Miller said this week that a settlement is “closer” but made no promises, noting for instance that the attorneys general want power to enforce the terms of their deal – something else the banks aren’t crazy about.
“One of the great challenges is enforcement,” Miller told Bloomberg. “We have to make sure that they do what’s promised. That’s going to be very difficult.”
The implication of Friday’s news on Ally is that all this is going to have to be squared away before the IPO can move forward and the government can start to recover some of its money – even if the housing market doesn’t start to melt again, which is unfortunately starting to look increasingly likely.
Of course, the banks would like to get this off their desk too. A deal that isn’t too costly might take some of the pressure off their stocks, which have been falling this year, much to the chagrin of management and investors alike. Big bonuses get harder to justify when investors are having their heads handed to them.
That’s not the only worry for the banks. A decision this week by Treasury to withhold some mortgage modification incentive money suggests the government is growing more willing to confront the banks.
But these considerable carrots aside, there’s still no sign the banks are about to accept responsibility for their egregious misbehavior and put this debacle in the past. That means more uncertainty for the banks, the government, the housing market, everyone.
If this is the best we can hope for from the supposed heart of our economy, a transplant is looking like a better idea every day.