Tom Wells

I've poured over books and consulted various business and financial experts such as David Hinderliter of the Kankakee Regional Chambero f Commerce and Tom Wells of First American Bank, who spent much time with me explaining things like collateralized debt obligations, TARP funds and credit markets.

Tom Wells, chairman of First American Bank, said the infusion of cash helped stabilize a banking industry that was on the brink of collapse last fall. First American is based in Carpentersville but has branches in Bourbonnais and Kankakee.

"The money was used as capital, which underpins all the activities a bank does," he said.

Thomas E. Wells, Chairman and CEO of First American, said, "The depth

I'd also like to take the time to thank Tom Wells, First American Bank chairman of the board, whose help on the article on page B1 today was invaluable.I'm sure Tom is incredibly busy but he generously spent his time explaining the very complicated world of investment banking so The Daily Journal could give our readers the best possible explanation for what caused the turmoil in the financial markets.

"If you need government help, then you should suspend your dividends," said Tom Wells, chairman of First American Bank, which is based in Carpentersville with branches in Bourbonnais and Kankakee. "Anybody that's taking TARP and hasn't suspended dividends is whistling past the graveyard. It's just stupid."

Wells was talking about the steps financial institutions should have taken once symptoms of a troubled economy appeared. At First American, dividend payouts were stopped, senior management bonuses were suspended and salaries were frozen well before the crisis hit, Wells said. He decried banks that took TARP funds but still paid out bonuses.

Referring to Merrill Lynch's $4 billion in bonuses, Wells said, "If the government has to tell management they have to stop (paying bonuses) they ought to be shot. ... What Bank of America didn't do to allow it is outrageous. It's beyond the pale.

"Those are the guys that created this mess, not us. We just got to deal with the splatter. Even so, Wells said he supports the idea behind TARP because banks had to be quickly stabilized last fall.

"TARP was designed to buy troubled assets. They quickly realized it was a difficult thing to do. So they put capital into banks they thought were viable," Wells said. "They haven't spent the money, they invested the money and it will come back unless the bank fails."

A bank gets TARP funds by selling preferred stock to the government. The stock will carry a 5 percent dividend for each of the first five years and a 9 percent dividend after that. Because the dividend payment increases after five years, banks have incentive to clean up their books and pay the government back, Wells said.
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But Wells has problems with the control government now has over how banks that received TARP operate. He also thinks media reports blasting banks for not lending are short-sighted and hypocritical.
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Wells also referred to the "shadow banking system" -- which consists of non-bank financial institutions like money market funds, hedge funds and structured investment vehicles.

Shadow banking institutions also stopped lending money, Wells said.
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Non-bank lending accounted for 60 to 70 percent of lending volume in the United States, Wells added.

Wells also is critical of the way the federal government is dictating operating rules to the banks that received TARP funds. He said it interferes with a free market and will in the end discourage growth.

"Nationalization hurts," Wells said. "If they want the private sector they will have to allow the private sector to have a return."

Wells also said the automotive and retail industries will play a role in how quickly the economy recovers. Both GM and Chrysler announced recently their sales have declined by 50 percent. Wells predicts bankruptcies in the retail sector within the next 60 days and some bank failures as well.

"If you need government help, then you should suspend your dividends," said Tom Wells, chairman of First American Bank, which is based in Carpentersville with branches in Bourbonnais and Kankakee. "Anybody that's taking TARP and hasn't suspended dividends is whistling past the graveyard. It's just stupid."

Wells was talking about the steps financial institutions should have taken once symptoms of a troubled economy appeared. At First American, dividend payouts were stopped, senior management bonuses were suspended and salaries were frozen well before the crisis hit, Wells said. He decried banks that took TARP funds but still paid out bonuses.

Referring to Merrill Lynch's $4 billion in bonuses, Wells said it's time for executives to realize things have changed. "As the business has changed, so must the compensation," he said. "They have to come to grips with it. ... What Bank of America didn't do to allow (the bonuses) is outrageous. It's beyond the pale. Those are the guys that created this mess, not us. We just got to deal with the splatter. Even so, Wells said he supports the idea behind TARP because banks had to be quickly stabilized last fall.

"TARP was designed to buy troubled assets. They quickly realized it was a difficult thing to do. So they put capital into banks they thought were viable," Wells said. "They haven't spent the money, they invested the money and it will come back unless the bank fails."

A bank gets TARP funds by selling preferred stock to the government. The stock will carry a 5 percent dividend for each of the first five years and a 9 percent dividend after that. Because the dividend payment increases after five years, banks have incentive to clean up their books and pay the government back, Wells said.
...
But Wells has problems with the control government now has over how banks that received TARP operate. He also thinks media reports blasting banks for not lending are short-sighted and hypocritical.
...
Wells also referred to the "shadow banking system" -- which consists of non-bank financial institutions like money market funds, hedge funds and structured investment vehicles.

Shadow banking institutions also stopped lending money, Wells said.
...
Non-bank lending accounted for 60 to 70 percent of lending volume in the United States, Wells added.

Wells also is critical of the way the federal government is dictating operating rules to the banks that received TARP funds. He said it interferes with a free market and will in the end discourage growth.

"Nationalization hurts," Wells said. "If they want the private sector they will have to allow the private sector to have a return."

Wells also said the automotive and retail industries will play a role in how quickly the economy recovers. Both GM and Chrysler announced recently their sales have declined by 50 percent. Wells predicts bankruptcies in the retail sector within the next 60 days and some bank failures as well.

"You had greedy consumers who bought too big a house; greedy brokers whose only care was a commission; greedy bankers who packaged loans for sale with lower credit standards; and greedy rating agencies who sprinkled their coveted AAA on the package for a fee; and, finally, greedy investors who lazily relied on the AAA rating in making their investment decision -- all who were asleep at the wheel," said Tom Wells, chairman of the board for First American Bank, which is based in Carpentersville but has branches in Bourbonnais and Kankakee.
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"That's the honey bucket," Wells said.
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The problem is that these vehicles became so complicated nobody really knew what to do, Wells said.
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To unravel a CDO-squared, for instance, one would have to weed through the bits and pieces and follow their trail all the way back to the original mortgage loans, Wells said.

One would have to read "750,000 pages of prospectuses to figure out what's in a CDO-squared," he said.
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"If I can buy a pool of loans at 6 percent, there's no reason for me to lend at less than 6 percent," Wells said.
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"There will be no tolerance for risk," Wells said."You may find you're better off dealing with local banks where you know them and they know you and you speak in person."

In the end, people who have been prudent will be able to ride out the crisis, Wells said, but "guys out there where the ice was thin are going to have some tough sledding."Print this story

Thomas E. Wells, Chairman and CEO of First American, said, "The depth and breadth of HPL&S' benefits practice affords us the opportunity to substantially enhance our client services.

"If you open a branch in Elmhurst, just because you are banking in Elmhurst doesn't mean you're redlining," said Tom Wells, chief executive officer, First American.

However, Wells acknowledged the bank should have anticipated the criticism of its practices.

"Obviously, everything wasn't satisfactory or we wouldn't have gotten the outcome we got," he said."But nothing was done willfully or with malice."
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Wells denied such statements were made to government officials and said such statements would be "counter to our practices."