The First Signs Of A Two-Tiered Banking Structure Emerge

The gap between banks with TARP funds on their books and those that have paid them back is getting wider by the week.

Today, CNN Money reports that the brain drain of investment bankers at Citigroup and Bank of America is beginning to take its toll on the two firms. (In all fairness to the banks however, the article doesn’t explain at all how this is happening, it just points out the phenomenon of bankers leaving. If you have been reading BNET Finance since the beginning of the year you would have been the first to have known this).

At Citi, Ajay Banga, who heads up the bank’s Asia Pacific operations, announced his resignation last Friday, while long-time Merrill Lynch veteran William Rifkin left to JPMorgan.

Bank of America also lost board directors General Tommy Franks and Admiral Joseph Prueher last Friday. Although the two are not believed to have left because of TARP-related issues, the situation illustrates how hard things are for the two firms right now.

Most startling perhaps is Citi chairman Dick Parson’s admission last week that he has to remind directors of their “patriotic duty” in to persuade them to stay. It is even questionable whether this practice is entirely ethical. For example, is someone who moves to work for a more profitable firm such as Morgan Stanley — which arguably makes a greater contribution to the U.S. economy — therefore being unpatriotic?

Regardless, the situation could not contrast more with yesterday’s announcement by Goldman Sachs that it will pay record bonuses to employees after a leap in earnings, mainly as a result of increased trading profits.

A two-tiered banking structure is already beginning to emerge. Unfortunately, that makes it even more unlikely now that the government will see a quick return on its outstanding TARP loans, as the banks Treasury is a shareholder in struggle to keep pace with the aggressive growth of their self-sufficient competitors.