Treasury’s role in sale of National City raises questions

Treasury’s role in sale of National City raises questions

It was inevitable that there would be winners or losers in any federal bailout of the nation’s financial institutions, but the machinations of the Treasury Department in the case of the pending sale of National City Corp. in Cleveland to PNC Financial Services Group of Pittsburgh raises more questions than were answered during a U.S. House hearing last week.

By refusing National City access to a single dollar from the $700 billion Troubled Asset Relief Program, the Treasury Department left National City with no alternative but to entertain offers from buyers. By making the TARP money that might have gone to National City available to PNC, Treasury used taxpayer money to underwrite a stronger bank’s purchase of a weaker bank. By providing tax incentives that allowed purchasing banks to write-off the liabilities of banks they were buying, Treasury sealed the deal. U.S. Rep. Steven LaTourette, R-14th, has estimated those tax savings at as much as $5 billion. PNC says the savings would be no more than $725 million. The difference is whether the taxpayer picks up a healthy share of the $5.6 billion PNC will pay for National City or virtually all of it.

Employees on the sidelines

Such questions may be no more than academic to nearly 29,000 employees of National City, because with Congress adjourning there appears to be little that a bipartisan group of representatives from Northeast Ohio can do to stop the sale before the end of the year.

We should stipulate that it is possible that the sale of National City was the only alternative to the bank’s eventual failure. Or it is possible that the bank could have been saved with an infusion of TARP money. It was the only one of the nation’s top 25 banks that was not offered TARP money, LaTourette points out.

This newspaper endorsed establishment of a federal bailout fund for the nation’s troubled mortgage industry. But Treasury Secretary Henry Paulson’s administration of that fund raises concerns. While the bill was being considered, Paulson said the government would be purchasing bad loans. Within days of the law’s passage Paulson said no “toxic loans” would be bought. Were the events on the ground changing that fast?

There is some irony that the administration defends giving Paulson a blank check for hundreds of billions, but opposed funneling $25 billion to automakers on the grounds that plans for using the money weren’t specific enough.

LaTourette, a conservative Republican, and his unlikely ally, U.S. Rep. Dennis Kucinich, a liberal Democrat from the 10th District, should continue demanding answers to questions about Treasury’s conduct leading to the sale of National City.