Goodfellas II: The Problem: Crappy Loans; The Solution: Even More Crappy Loans!

clipped from www.businessweek.com Standard & Poor's equity analyst Erik Oja raised his rating on shares of BancorpSouth (BXS) in part because the regional bank hasn't needed to take TARP funds. Banks don't know all the disadvantages of taking the TARP bailout, Oja says, because "the government does reserve the right to tweak some of the rules going forward." For example, analysts warn banks may be forced by the government to loan out money. That may help the U.S. economy recover more quickly, but it could hurt bank balance sheets if they're forced to lend to people and businesses just as their finances are being hurt by a serious recession. In some cases, banks could be forced to eliminate dividends to common shareholders, Oja warns. While others could be forced to boost lending, even though it's difficult to find creditworthy borrowers in a recession. "Taking that money and putting it to work right now is tough," Oja says.

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