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Fallout: The Financial Crisis

Will other big banks need more help?

Mitchell Hartman Jan 15, 2009
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Fallout: The Financial Crisis

Will other big banks need more help?

Mitchell Hartman Jan 15, 2009
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TEXT OF STORY

KAI RYSSDAL: If, in fact, Bank of America does get help closing the Merrill deal — and we’re not going to know officially until it reports earnings next week as Ashley said — CEO Ken Lewis isn’t going to be the only happy banker around.

J.P. Morgan Chase and Wells Fargo also tapped into the TARP to ease their acquisitions of smaller competitors. Competitors, we should say, whose books might have been just as bad as Merrill’s. Given that, Marketplace’s Mitchell Hartman looked into whether there might be some buyers’ remorse on the way.


MITCHELL HARTMAN: J.P. Morgan Chase and Wells Fargo each got $25 billion to make it easier for them to take over WAMU and Wachovia, along with all the bad loans sitting on their books.

With loan losses continuing to mount throughout the financial system, Chase and Wells Fargo could face some of the same trouble as B of A, says Bernie McGinn of McGinn Investment Management.

BERNIE McGINN: All of the banks that have taken over other banks are going to have heartburn.

Still, says McGinn, Merrill Lynch — as an investment bank — came with more potential trouble. WAMU and Wachovia were traditional, straight-ahead banks.

McGINN: Merrill Lynch is a more dynamic, more risky company than, say, Wachovia was. And a straight bank also comes with deposits. OK? And J.P. Morgan can be helped by the deposits.

We had evidence of that today with J.P. Morgan reporting a small profit, thanks in part to operations at WAMU.

Brian Bethune, chief U.S. financial economist at IHS Global Insight, says these TARP-facilitated bank mergers remain a good deal now, as they were in the first go-round.

BRIAN BETHUNE: Wachovia and Washington Mutual were caught in a general run against the banks. What happened was first-tier banks such as J.P. Morgan purchased banks in the second tier to try to eliminate some of the systemic risk.

Nonetheless, Bethune predicts that there will be more trips to the TARP trough in coming months, including possibly by Wells Fargo and J.P. Morgan Chase, as banks continue to write off bad assets and buy up their weaker rivals.

I’m Mitchell Hartman for Marketplace.

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