Shareholders of Independent Bank Corp. will vote tomorrow on a recapitalization plan that could give the U.S. government the biggest ownership stake in the company.
Independent Bank, based in Ionia, Mich., is seeking approval to increase its authorized common shares from 60 million to 500 million, and to exchange certain preferred securities for common shares.
The company got $72 million in public money through the Troubled Asset Relief Program in December 2008.
The recapitalization plan could greatly dilute the holdings of existing investors in the bank, which has posted five consecutive quarterly losses because of difficult economic conditions in its home state.
Independent Bank lost $17.3 million in the third quarter of 2009. It will release results for the fourth quarter and the full year next month.
Independent Bank is proposing to exchange as many as 180.2 million shares for four sets of trust preferred securities, which have a liquidation value of $90.1 million.
It also wants to give common shares to the Treasury Department to replace the preferred stock it issued when it received the TARP money.
Finally, the company hopes to raise as much as $150 million in new capital through the sale of additional common stock.
Independent Bank said in a filing related to the shareholder' meeting that if it does not lift its minimum capital ratios within the next three months or so, they might fall below the level necessary to remain "well-capitalized.'' It said that could lead state and federal regulators to impose restrictions that would adversely affect the company's financial condition and operating results.
Independent Bank said in another SEC filing Wednesday that its Mepco Finance Corp. subsidiary expects to take a charge of at least $12.4 million in the fourth quarter because of the "probable failure'' of its most significant counterparty.
Mepco, which buys receivables tied to installment payments for automobile warranties and service plans, also took a $6 million charge in the third quarter to reflect that partner's difficulties.
Mepco did not identify the other party. But media reports have linked it to US Fidelis, an extended warranty company in Missouri that has been charged with deceptive business practices by that state's attorney general and is the subject of a joint investigation by more than 40 states.
According to a story in the St. Louis Post-Dispatch, Mepco serviced most of US Fidelis' extended auto-service contracts. The article noted that Darain Atkinson, US Fidelis' founder and president, gave Mepco a second mortgage on the company's headquarters building in October, and pledged various other assets as collateral for as much as $50.2 million in financing.
US Fidelis has laid off most of its workers and stopped selling new extended-service contracts. Earlier this month, Mepco bought the company's headquarters at a foreclosure auction for $2.73 million.
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