Government forces banks to sell

That “voluntary” bank recapitalization program turns out not to be so voluntary:

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left. . .

The chairman of Wells Fargo, Richard M. Kovacevich, protested strongly that, unlike his New York rivals, his bank was not in trouble because of investments in exotic mortgages, and did not need a bailout, according to people briefed on the meeting.

But by 6:30, all nine chief executives had signed.

Apparently, the government will not be voting the stock it is forcing the banks to sell, but it’s not clear from the article whether that commitment will be binding on future administrations:

The Treasury will receive preferred shares that pay a 5 percent dividend, rising to 9 percent after five years. It will get warrants to purchase common shares, equivalent to 15 percent of its initial investment. But the Treasury said it would not exercise its right to vote those common shares.

Also, the terms are apparently designed to encourage banks eventually to buy out the government, but again it’s not clear whether the government has a binding commitment to sell:

The terms, officials said, were devised so as not to be punitive. The rising dividend and the warrants are meant to give banks an incentive to raise private capital and buy out the government after a few years.

So it’s possible we’re looking at something less than bank nationalization, but it’s by no means certain.

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