PhillyDeals: Bank plan called a subsidy from taxpayers

Not everyone is happy with the Obama administration's plan to help private investors take bad loans and bonds off the balance sheets of troubled banks.

"This is being disguised as a good deal from the government and a 'market-based' solution, when in reality it's a direct subsidy from taxpayers to banks," complains Chao Chen, portfolio manager at $450 million-asset TFS Capital L.L.C. in West Chester.

What former President George W. Bush didn't dare, President Obama is sugar-coating, Chen adds. "The whole point of the plan is to inflate the prices for those assets. The taxpayer is taking almost all the risk."

That keeps prices high, which means banks may not have to write off so much. Still, big bond buyers - names such as Pimco, BlackRock, Carlyle - said yesterday that they wanted to join the government program.

Vanguard Group Inc. of Malvern is still "analyzing" the program, spokeswoman Amy Chain says, and waiting for more details "to better evaluate whether the investments would be a good fit for our funds." It has until April 10 to decide.

Will the program really restart the economy?

"We wonder how realistic it is to assume banks will begin lending again immediately after they are able to offload some of their most troubled assets," writes Kevin Fitzsimmons, managing director at Sandler O'Neill + Partners L.P. in New York. "Any real results from the program could still be months away."

So while "stocks may continue to rally in the near term," Fitzsimmons warned against being bullish. "We are just weeks away from another weak earnings season," he said.

One of the faster-growing small companies in Philadelphia this winter was Energy Plus, which sells electric power to 30,000 homeowners and small businesses in New York and wants to expand to Texas, Pennsylvania, and other "competitive electric market" states, says president Kevin Kleinschmidt.

The firm moved in December from a suite in the Bell Atlantic tower to the University City Science Center small-company "incubator" at 3711 Market St. It has since doubled employment, to 30, Kleinschmidt says. Gross revenues (power purchased) totaled $20 million in 2008; Kleinschmidt expects that to triple in 2009, and he says the firm turned profitable last year.

Energy Plus buys power through an energy-company trading desk. "It's like foreign exchange," Kleinschmidt says. "The long-term fixed prices are higher than the current spot price . . . big users are still willing to pay a premium to lock in prices. But most customers, especially residences and small businesses, don't see a benefit for paying a higher price now, especially in a falling-commodity-price environment."

Energy Plus tries to win customers from Con Ed and other big suppliers. It doesn't promise to be cheaper, just "competitive." But Energy Plus gets an edge, according to Kleinschmidt, because independent suppliers get a break from New York's sales tax, making it several percentage points cheaper (depending on where you are in the state) than the big utilities.

No such tax break in other states. So Energy Plus is trying to sweeten its deal with credit card-style frequent-flier miles . . . genuine breaks on air travel for getting your power from Energy Plus. Kleinschmidt, a onetime Morgan Stanley stock analyst, used to work with his boss, Energy Plus chairman Richard W. Vague, at credit card lenders Juniper Bank and Barclaycard USA in Wilmington.

Energy Plus picked the Science Center because of its Keystone Opportunity Zone status, state and city tax breaks, and the proximity to interns from nearby Drexel University.

Less high on Pennsylvania is cheap-electric-car mogul-in-development Barry Bernsten, the Center City steel wholesaler who has been pitching for state financial aid for his proposed BG Automotive plant. "BG is shovel-ready and can start manufacturing [and] assembling cars in 90 days," he told me last week.

Bernsten says New England and Western states "have aggressively been chasing us to bring jobs to their respective states, unlike Pennsylvania. Pennsylvania talks a big game but does not deliver. There's a good chance we will be moving our manufacturing to New England in the next 30 to 60 days."