Webster Financial begins "orderly repayment" of TARP money

Webster Financial Corp., the holding company for Webster Bank, N.A., has received Treasury Department approval to repurchase $100 million of preferred stock it sold to the government through the Troubled Asset Relief Program in November 2008.

Unlike the majority of TARP recipients, however, Webster is not redeeming all of its shares at once.  In fact, the $100 million in preferred stock represents just one-quarter of the Treasury's investment in the company.

Webster has already paid nearly $20 million in dividends on the Treasury's initial $400 million investment, made through TARP's Capital Purchase Program.

Those dividend payments will decrease significantly once the company redeems the first block of shares this week. That should provide a boost to its bottom line.

Webster posted a loss of $54.4 million for the fourth quarter of 2009, and $85.3 million for the full year.

Although the company's gradual withdrawal from TARP sets it apart from other banks that have exited the program, its executives have long said they had no desire to join their counterparts in a "race for the door" and would use the government money "as intended and promised."

"We have previously announced our intent to start an orderly repayment of our participation in the Capital Purchase Program,'' Chairman James C. Smith said in a press release. "We are pleased to now begin that process, having received the U.S. Treasury's approval of our request to repurchase 25 percent of the outstanding preferred shares."

In a conference call with analysts last April, Smith noted that he would ask the Treasury to help Webster sculpt an "orderly responsible payment plan" for the funds.  At the time he criticized executives of larger institutions. who were opting to repay TARP funds as quickly as possible to avoid what they considered punitive compensation levels, but who also were leaving their banks in unstable condition.

"I think it is important not to lose sight of the big picture," Smith reminded his shareholders.  "We should all remember that the CPP funds are designed to protect the system from worse than anticipated recession and losses and it will be a while before we can surely know that the system is not threatened."  

Smith also boasted at the time that his bank was using the public money "to purchase mortgage-backed securities and to make loans."  The lack of both these actions among many TARP banks was a major criticism of the Congressional Oversight Panel in its December 2009 report.

It is not immediately apparent when Webster plans to ask the Treasury for permission to redeem more of the TARP shares. The company's  annual shareholders' meeting is scheduled for April 29.