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Keep in mind that it is the taxpayers’ money. The various scandals and furors surrounding the actions of recipients of TARP funding have clearly emphasized that taxpayer money brings special responsibilities and sensitivities. This awareness should not be a strait jacket that keeps the managers from pursuing sensible business tactics, but there will be a need to consider how actions would appear to the public. One of the difficult tasks for the CEO and other top officers will be to make the case to the public for actions that are necessary for the bank to take, but which will intuitively seem wrong to much of the public. It is possible that sales conferences in resort locations may be one of these issues, considering how important a motivator these are for many people in sales activities.

Keep the team focused on maximizing profits. It is exceedingly difficult, sometimes impossible, to maximize two different variables at the same time. Trying to do so can create inconsistencies and inefficiencies that reduce the ability to do anything well. Senior management should choose short and longterm strategies that take account of the public policy objectives and they may need to set some explicit constraints. Within the range of activities consistent with the objectives and constraints, the team should focus on maximizing profits. This approach does not need to be so strict that there is no reward for generating ideas that aid in achieving public policy objectives, but it would be a mistake to scatter the effort in too many different directions. The intention is to create a profitmaking bank that can be reprivatized, not to use the bank as a longterm tool of public policy.

Step 14: Sell the government’s stake over time There are three principal routes to a sale of the government’s stake:

Look for a strategic buyer. Generally a seller will get the best price by finding a purchaser in the same industry that has the expertise to evaluate the firm and the ability to find synergies by combining the two businesses. These synergies can consist of expense reductions, from which bank mergers frequently benefit, or crossselling opportunities or other ways of increasing revenues. This route may be harder than normal. First, the buyer would almost certainly need to be quite large in its own right, which could raise antitrust concerns or simply go against a general attempt to fight the Too Big to Fail phenomenon. Second, the government may be reluctant for political or policy reasons to sell to a foreign acquirer, potentially ruling out another set of buyers.

Sell to a financial buyer. In recent years, the most common nonstrategic buyers have been private equity funds or other investors who rely on financial leverage. This is normally more difficult to pull off when buying a financial institution, because such firms are already highly levered, so it can be excessively risky to add much additional financial leverage. It is hard with a bank to be sure of a steady stream of dividends to pay off the interest and principal on the loans that support the acquisition. However, the government may be willing to guarantee a substantial amount of acquisition borrowing in order to extract the best price for the bank and in order to move it into private hands more quickly. This would leave the risk that it would essentially have to repossess the bank later, but if that risk is low enough, it may be worthwhile.


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