I was tentatively planning on coming back tomorrow after a very long month that I’ll fill you all in on later.
However, a story reminded me of an e-mail discussion with a friend a while ago. A politician was floating his name out for higher office seemed particularly unsuited and yet no one was making fun of him. I asked my friend why.
He pointed out it isn’t polite to make fun of the retarded.
That may be true, but I’m going to make fun of Crain’s and Steve Daniels anyway.
The hit piece on Alexi is pretty atrocious and it’s hard to find the worst part, but let’s start with this:
“Those (dividends) are appalling,” says Bert Ely, a Virginia-based banking consultant. “They basically were sucking capital out.”
Broadway says a “substantial” portion of the dividends went to tax payments, but won’t say how much. As a Subchapter S corporation, Broadway passes tax liabilities on to shareholders. Such companies often pay dividends to reimburse shareholders for tax payments. If Broadway shareholders paid taxes on the bank’s earnings at the highest rate, 40%, $39 million would have covered their tax payments. But that still leaves $31 million that appears to have gone to the family and today could help the bank weather the recessionary storm.
This is a pretty amazing quote to use. First, the bank is wholly owned by the Giannoulias family so the suggestion that they are acting against the interest of the bank itself is a bit bizarre.
That’s not the most ridiculous part though. There’s something materially different about the state of the bank ownership before 2006 and after—the death of the primary owner and the need to settle his estate which includes bank assets and thus dividends were used for regular taxes as a Subchapter S corporation, but also to settle the estate.
The final question is would Alexi back restoring the dividends as if that was just cash sitting around. It was used for taxes and settling the estate, the cash isn’t sitting around to just be put back in. It could be possible to use some of the estate portions that went to the family to recapitalize the bank, but that isn’t simply restoring dividends, it will be a separate agreement to provide additional capital. It’s a fundamental misunderstanding of how the estate would be divided and the process to then utilize those funds isn’t just putting cash back in because the ownership has fundamentally changed.
The question of Alexi is another bizarre part of the story. Did the bank go overboard like almost every other bank in relation to the housing boom? Yes and Alexi had some part in those decisions. But he has not had an operational interest in any of the time since 2005 so the question is why is he mentioned in the article other than it was suggested that it was an interesting topic by someone out there (read Republicans). Alexi has no responsibility for the current practices of the bank and all of the dividends aren’t an issue for his time in the bank. It’s a non-story related to him. In fact, the scandal would be if he did have something to do with the decisions.
Extra irony points for quoting Bert Ely who wants to abolish reserve requirements on banks about how bad the reserves are at Broadway. You really have to try and find someone that kooky to reach that level of irony.