Tough Love at TCF

Meanwhile, Cooper has continued to make news. In February, TCF Financial announced that it would move TCF National Bank’s charter to South Dakota, which it said would allow the bank to streamline its regulatory compliance under the laws of its new home state. In March, TCF notified the U.S. Treasury department that it would redeem the $361 million in preferred shares that the government had purchased under the Troubled Asset Relief Program. TCF cited the department’s midstream increases in restrictions on the money as the reason. The company expected to complete that transaction by April 1.

A Detroit native, Cooper did not come from a banking background. His father, a Welsh immigrant who died while Cooper was still a boy, was a draftsman. His mother worked for a railroad as an auditor-clerk. While he studied accounting at Wayne State University during the day, Cooper patrolled Detroit as a cop on the night shift. Asked what lessons he brings forward from his early years on the street to the banking business, he offered a single phrase: “Never get rattled.”

On the Financial Crisis

SW: How did we get into this mess?

BC: A lot of things contributed. First, there were structural problems. For example, the whole trend where a bank originated loans and then sold them to somebody else. The loans were securitized and got good ratings from a 23-year-old Harvard MBA who didn’t have a clue. Then, the securities were sold to people based on their ratings. Since banks weren’t eating what they killed [i.e., keeping the loans they had made on their own balance sheets], they weren’t very picky about what they killed.

We went through this whole process of the deterioration of credit—the subprime explosion, where loans were given to people with bad credit. Incomes were never verified. Loans included variable rates that were bound to rise, and featured high loan-to-value ratios. It doesn’t take a rocket scientist to figure out that this was not going to be a good plan.

The whole derivative business was also part of the problem. Extraordinarily complex, derivatives started out as hedges against risk and ended up being used for speculation. The amount of derivatives [in the market] was much huger than the amount of risk they were covering. And you can’t figure them out since they’re contracts—they’re all different.

SW: You don’t let the accountants off the hook, either.

BC: The move to mark-to-market accounting is baloney and doesn’t have anything to do with reality, marking investments way below their economic value. For example, say you own $2 billion of an investment, and someone else trades $100,000 at a lower price. You’re then forced to write down your investment [to reflect the “market” price]. None of that makes any sense, and it creates huge volatility. If the investment is going to pay off over its life and you’re holding it, why would you mark it down? The accounting industry carries a heavy burden on this.