Proposed Financial Crisis Fee Could Cost Biggest Banks $2 Billion

President Barack Obama's proposed Financial Crisis Responsibility Fee is likely to cost the three biggest banks as much as $2 billion a year, analysts said.

Banks and their representatives reacted to the proposed fee, intended to recoup some $117 billion in expected losses to the government from the financial system bailout, with a mixture of resignation and defiance.

Wells Fargo & Co. (WFC) "was asked to participate in the TARP, and we did. We repaid the full investment to the government plus $1.4 billion in dividends," the San Francisco bank said in a statement. "We hope that additional or punitive government fees will not reduce the industry's ability to help consumer and small businesses access capital and credit, which lenders such as Wells Fargo have done consistently before and throughout this recession."

J.P. Morgan Chase & Co.'s (JPM) Chairman and Chief Executive Jamie Dimon said Wednesday on CNBC television he accepts that banks will be taken to task to reimburse taxpayers for preventing a collapse of the financial system - but such reimbursement should not be in form of a penalty.

But some banking representatives balked at the proposal that their industry will now have to pay for the problems of the auto industry, and Fannie Mae (FNM) and Freddie Mac (FRE), in addition to the parts of the crisis where bankers have accepted some responsibility, namely sloppy mortgage underwriting and taking too much risk.

What's more, "we are far from any shortfall" in taxpayer money from TARP, said Scott Talbott, a vice president for government affairs at the Financial Services Roundtable, a lobbying group for large banks. "We don't know the end result of TARP. We think it will be a profit" for the Treasury Department. As such, the tax is premature, he said.

The sums that banks will have to pay are large. Analysts estimate that the fee for J.P. Morgan Chase, Citigroup Inc. (C) and Bank of America Corp. (BAC) would likely be around $2 billion. Wells Fargo might have to pay around $700 million a year. Morgan Stanley (MS) will have to pay around $1 billion, Goldman Sachs Group Inc. (GS) a bit more, analyst calculate.

The fee for Bank of New York Mellon Corp (BK) and State Street Corp. (STT) could come in around $200 million. All banks contacted for this story declined to comment on the fee.

Some foreign banks that operate in the U.S. would have to pay. Some large U.S. non-bank financial companies also would be subject to the fee.

Analysts described the impact of the fee on the institutions as more of a headwind than a crippling penalty. Like many bankers, analysts believe that it will be the customers who ultimately suffer the consequences.

"If the bank fee were to run straight through to the bottom line, it would hit the institutions' net income for a range of 1.5% to 11.3% of their 2011 estimated earnings," Oppenheimer & Co. analyst Chris Kotowski wrote in a research note. "However, we don't believe that the fee will run directly to the bottom line. We view it as effectively an increase in the wholesale cost of funds that will be passed through to the customers" that take out loans, he wrote.

Analysts pointed to the fee as one more example of the heightened regulatory risk facing banks in the wake of the financial crisis. Public anger at the initial bailout has boiled over as the banks have recuperated from their near collapse far more quickly than struggling homeowners, laid-off workers and the broad economy.

Congressman Barney Frank, the chairman of the House Financial Services Committee, said on CNBC that banks benefited far more from TARP than simply through the cash infusions they received, because TARP prevented the banking system from collapsing in the fall of 2008. For that, he said, taxpayers should get their share.

The tax on banks, thrifts, and insurance companies with more than $50 billion in assets is, in effect, a way to discourage risk. The proposed fee is 0.15% of bank assets minus tier 1 capital and deposits insured by the Federal Deposit Insurance Corp. - essentially taxing the risk banks take by borrowing money to make loans.

But risk is part of banking, Talbott said. "The tax hits an essential part of banking," he said. Forcing bankers to rely only on customer deposits to make loans might limit their ability to lend, Talbott and bankers said.

- By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

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