At least three banks that got bailout funding have stopped paying dividends to the federal government, raising questions about the Treasury Department's claim that it only gave assistance to well-capitalized institutions.
According to the Wall Street Journal, Pacific Capital Bancorp, Seacoast Banking Corp., and Midwest Banc Holdings Inc. have all exercised their rights under the Troubled Asset Relief Program to suspend dividend payments for as long as six quarters. Eventually, however, they will have to make up all back payments on the shares they issued to the government in return for taxpayer capital.
The banks cited the need to preserve cash and improve capital ratios as reasons for halting dividend payments.
Pacific Capital, which got $180 million in aid through Treasury's Troubled Asset Relief Program, said in a press release that its dividend suspension could save $32 million a year. The company lost $7.9 million in the first quarter of 2009, on top of a $23.8 million loss for the final quarter of 2008.
"We believe the actions we have announced today are the most prudent course of action and will improve our flexibility to consider other actions that may need to be taken in order to achieve our targeted capital ratios," said George Reis, Pacific Capital's chief executive.
Federal regulators told the bank earlier this year that it had to improve capital ratios by the end of June.
"We would expect to resume paying dividends when such payments would be consistent with our overall financial performance and capital requirements," Reis said.
Under the terms of the bailout program, participating banks that sold the government preferred shares are expected to pay dividends equal to 5 percent annually for the first five years nine percent for each following year. So far, the Treasury has received $4.5 billion in dividend payments, the Journal reported. The three banks that have stopped payment accounted for $16 million a year.
The decision by the banks to stop paying dividends raises questions about Treasury's standards in allocating the $700 billion reserved for the banking bailout. When the program was first announced, officials said that only healthy banks could receive assistance.
Nevertheless, the Treasury has been criticized for not publishing the criteria it used to make that determination, criticism that seems certain to heat up as some of the bailed-out banks are forced to admit their weaknesses in public.
According to the Wall Street Journal, Pacific Capital Bancorp, Seacoast Banking Corp., and Midwest Banc Holdings Inc. have all exercised their rights under the Troubled Asset Relief Program to suspend dividend payments for as long as six quarters. Eventually, however, they will have to make up all back payments on the shares they issued to the government in return for taxpayer capital.
The banks cited the need to preserve cash and improve capital ratios as reasons for halting dividend payments.
Pacific Capital, which got $180 million in aid through Treasury's Troubled Asset Relief Program, said in a press release that its dividend suspension could save $32 million a year. The company lost $7.9 million in the first quarter of 2009, on top of a $23.8 million loss for the final quarter of 2008.
"We believe the actions we have announced today are the most prudent course of action and will improve our flexibility to consider other actions that may need to be taken in order to achieve our targeted capital ratios," said George Reis, Pacific Capital's chief executive.
Federal regulators told the bank earlier this year that it had to improve capital ratios by the end of June.
"We would expect to resume paying dividends when such payments would be consistent with our overall financial performance and capital requirements," Reis said.
Under the terms of the bailout program, participating banks that sold the government preferred shares are expected to pay dividends equal to 5 percent annually for the first five years nine percent for each following year. So far, the Treasury has received $4.5 billion in dividend payments, the Journal reported. The three banks that have stopped payment accounted for $16 million a year.
The decision by the banks to stop paying dividends raises questions about Treasury's standards in allocating the $700 billion reserved for the banking bailout. When the program was first announced, officials said that only healthy banks could receive assistance.
Nevertheless, the Treasury has been criticized for not publishing the criteria it used to make that determination, criticism that seems certain to heat up as some of the bailed-out banks are forced to admit their weaknesses in public.
published June 23, 2009, 0 Comments
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