When the Treasury Department
issued TARP aid to more than 700 financial institutions across the country, one
of its requirements was that they be healthy, viable and likely to survive even
without the influx of capital.
But more than 100 of the beneficiaries of the Troubled Asset Relief Program have failed to make at least one of their quarterly dividend payments to Treasury on the taxpayer money they received.
And one bank, the single-branch Saigon National Bank in the heart of California's Vietnamese-American community, has the distinction of being the only one in the country that has missed all five of its quarterly dividend payments to date, according to the latest quarterly report from TARP's Special Inspector General. The five missed payments totaled $96,600.
Some observers note that skipped dividend payments are an indictor that a bank is having problems and could be short of capital. Midwest Banc Holdings Inc, an Illinois company that got $84.8 million in TARP money, missed four out of five dividend payments before its main subsidiary, Midwest Bank, was seized by regulators last week.
Treasury's
investments in the banks, through TARP's Capital Purchase Program, were
intended to help promote the stability of already-healthy institutions and
increase their ability to meet the credit needs of both consumers and
businesses.
The government issued a total of $204.9 billion in TARP money to banks in the Capital Purchase Program between October 2008 and the end of 2009. A little more than $135.8 billion of that aid has been repaid, through the end of March, according to the Special Inspector General's report.
Federal regulators approved Treasury's investment in Saigon National at their first Investment Committee meeting on Oct. 23, 2008. Exactly two months later, the government invested nearly $1.55 million in the bank, in exchange for 1,549 preferred shares of stock, plus warrants that it exercised immediately. Saigon National's aid package was dwarfed by those of other early TARP recipients, and at the close of 2008, it ranked as Treasury's smallest Capital Purchase Program investment.
If Saigon
National fails to pay its next quarterly dividend payment, it could find itself
in precarious territory. Once a bank misses six payments, Treasury has the
right to elect two directors to its board. As of the end of March, no banks
were subject to that penalty, but the program has been around for only five
quarters - meaning that Saigon National is closer than any other institution to
reaching that threshold.
In an
interview earlier this year with BailoutSleuth - after Saigon National had
missed four payments - the bank's chief financial officer Roy Painter dismissed
the suggestion that the missed dividend payments were a sign of trouble for the
bank. He said they only indicate the challenges the bank faces in securing
shareholders' approval to make the payments.
He said the
bank was in a "unique circumstance,'' because it must get approval from 67
percent of its 270 shareholders to pay the dividends.
"That
process takes time," Painter said. "We have not been able to get the
67 percent."
Painter said
at the time that, after unsuccessful attempts to get permission to make earlier
dividend payments, the bank had secured shareholder approval to make its $21,000
payment for the quarter ending Feb. 15 -- pending approval from its regulator,
the Office of
the Comptroller of Currency.
However, the latest Special Inspector General's report shows that - yet again -- Saigon National skipped its payment. Its total missed payments amount to $96,600. Painter has not returned several messages left by BailoutSleuth this week inquiring why the bank failed to make the payment.
The dividend payments are non-cumulative, so the bank is not required to make back payments. Earlier this year, after missing four payments, Painter said the lack of shareholder approval was "not a matter of reluctance" to make the payments but was merely a logistical challenge to get a response from them, since much of the stock in the bank is held in street name.
"The process is just a challenge, even to get to the 50 percent level (for a quorum)," Painter said.
Some banks have failed to make their dividend payments to Treasury because their regulator has prohibited them from doing so. But Saigon National is not under any orders from the OCC that would prohibit it from paying the dividends to Treasury, said Dean DeBuck, a spokesman for that agency.
Meanwhile, the value of Saigon National's shares, which are traded on the Over the Counter Market, have fallen precariously over the course of the last year, from $4.00 to just 18 cents.
In 2009, it had $6.9 million in losses, according to figures from banking regulators. Saigon National had total assets of $65 million.
According to a March 10, 2009, letter to the Special Inspector General, Neil Barofsky, the bank reported that the government money it received "provides the capital to grow the bank at an accelerated pace," "provides an additional cushion against future loan losses" and "immediately increase(s) the bank's liquidity."
Three other uses of TARP funding were redacted from the public version of the letter.
"We applied for the TARP funds because we envisioned an opportunity to accelerate the bank's growth due to increased capital," then-CEO John J. Kennedy wrote. "With the TARP funds we have been able to plan for a higher rate of growth than prior to receipt of the TARP funds."
Kennedy was replaced by Bill Lu in July 2009, Painter said.
Saigon National, which opened in 2005, raised $14 million at $10 per share at its initial public offering, according to the Orange County Register. The paper reported that the bank's opening was delayed by several months because it wanted to achieve its goal of having more than half of its 400 shareholders be of Vietnamese or Vietnamese-Chinese descent.
The bank, located in Orange County, Calif., is in the heart of the "Little Saigon" community, which has a large Vietnamese-speaking population. According to the Treasury, the bank's management and board sought to establish a presence in the area by hiring Vietnamese-speaking staff.
In an interview with the Orange County Register just after Saigon was awarded the TARP funds, Kennedy said the capital would allow the bank to do more lending. "If you're qualified, we want to make the loan to you. If we were up against our limits, then the additional capital would make it easier to take the next group of borrowers that are qualified," he said.
Saigon National did increase its lending following its receipt of TARP money. According to its quarterly earnings statement from May 2009, the bank's total lending increased from $25.5 million to $50.4 million between March 31, 2008 to March 31, 2009. In its most recent FDIC filing, it reported $47.9 million in lending.
The Orange County Register also reported in November 2008 that the bank had a net loss of $1 million through September of that year, a fact that Kennedy attributed to the bank being relatively new and "still growing." He also said commercial lending was about 95 percent of the banks' business, with the remainder being consumer lending. At that time, he said the bank had about 280 investors, 70 percent of whom were Vietnamese-Americans.
As of May 2008, Saigon National had a "satisfactory" rating under the Community Reinvestment Act. That was its most recent exam date. the bank got high marks for having a reasonable loan-to-deposit ratio, as well as satisfactory lending patterns and excellent geographic distribution of loans.
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