May 2009 Archives

May 29, 2009 3:53 PM

FDIC Restricts Interest Rates For Struggling Banks

  by AVI KLEIN

A day after releasing a discouraging report about the banking industry, the Federal Deposit Insurance Corp. said struggling banks will no longer be able to attract deposits by offering interest rates far above prevailing market conditions.

The regulator's board of directors voted Friday to restrict "not well-capitalized" banks from offering interest rates that "significantly exceed" market rates.

Struggling banks often have a hard time attracting the deposits they need in order to maintain appropriate capital levels and conduct regular lending operations. Offering exceedingly high rates on certificates of deposit and other consumer instruments is one way to make up the shortfall. However, it can also put the bank on the hook for large debt obligations down the road.

Before it collapsed last year, Washington Mutual Inc. was offering five percent on certificates of deposit when the going rate was three to four percent, Consumerist.com reported.

Current law already prohibits struggling banks from offering excessive interest rates, but critics have said that the FDIC did not properly define the meaning of "normal market rates." The problem has grown over the years due in part competition on the Internet, said Sheila Blair, the chairwoman of the FDIC.

The new rule requires the FDIC to post a "national rate" on its website, which bankers would have to refer to in deciding whether their offered rate qualifies as reasonable. If a bank feels that local conditions require an adjustment, it can appeal to its regulators for an exemption.

Yesterday, the FDIC published a report showing that banks continued to fail at record levels. As BailoutSleuth reported, much of the problem continues to be fallout from the housing market, which accounted in the last quarter for 84 percent of the recent increase in non-confirming loans.
May 28, 2009 5:05 PM

FDIC: Problem Banks and Non-Current Loans Continue Climb

  by AVI KLEIN

In a sign that instability is still working its way through the banking sector, the number of troubled banks and thrifts increased 20 percent in the most recent quarter, while the number of failed banks increased dramatically as well.

In a quarterly report on the health of the banking system, the Federal Deposit Insurance Corp. reported 305 problem banks and thrifts in the first quarter of 2009, up from 252 in the previous quarter and the most since 1994. The total assets held by problem institutions also increased, from $159 billion to $220 billion.
 
The FDIC did not name the problem banks, gathering its information from confidential reviews of their capital ratios, loan portfolios, and other indicators of financial health.

At the same time, the total number of banks under FDIC supervision decreased, with 50 merging with other banks and 21 failing outright.

The FDIC report also contained troubling news about the state of American business. Non-current loans increased $59.9 billion, or 25.5 percent, in the first quarter. The percentage of non-current loans among all outstanding loans is now 3.7 percent, the highest since 1991.

Troubles in the housing market accounted for 84 percent of the total increase in non-current loans, with non-current residential mortgage loans up $26.7 billion and non-current real estate construction loans up by $10.5 billion. According to the FDIC, all major loan categories experienced rising levels of non-current loans, and 58 percent of insured banks reporting increases in their non-current loans.
May 28, 2009 2:40 PM

First Manitowoc To Withdraw From TARP; First Niagara Completes Redemption

  by AVI KLEIN

Two more banks have redeemed the shares they sold the government in exchange for bailout funding.

First Niagara Financial Group Inc., of Lockport, N.Y., said it repaid the $184 million it received seven months ago. BailoutSleuth reported previously on its plan to exit the bailout the program.

First Manitowoc Bancorp Inc., a Wisconsin-based company, said it had paid the Treasury $12.6 million to redeem the shares it issued in January. It also paid $21,800 in accrued dividends.

First Niagara's chief executive, John P. Koelmel, said the taxpayer capital that the bank received through the Treasury Department's Troubled Asset Relief Program had served its purpose.

"Our first quarter loan production increased by 8 percent over the same period a year ago as we continued to leverage the federal capital to make commercial and consumer credit readily available in the communities where we do business,'' he said in a prepared statement. "When market conditions improved, we replaced the government's investment with private capital''

First Niagara raised $380.4 million through a stock offering last month.

Michael B. Molepske, First Manitowoc's chief executive, said that the bank's approval for, and withdrawal from, the Troubled Asset Relief Program were both signs of its financial health.

"The Treasury's investment in our Company was an indication of our soundness and the Treasury's acceptance of our repayment further highlights the financial soundness of Bank First National," Molepske said in a prepared statement.

When the TARP program was announced, many banks applied under the belief that approval by the Treasury would calm anxious investors and partners.

Many other banks, however, calculated that involvement would send more negative than positive signals about the bank's stability. First Manitowoc's decision reflects a growing consensus that the latter interpretation was the correct one.

More than two dozen banks have either returned their TARP money or announced plans to do so. To gain approval, however, they must prove to the Treasury that they are strong enough to survive without government financing or loan guarantees.

Seventeen Wisconsin banks have received TARP funds. First Manitiwoc is the first of them to leave the program.
May 27, 2009 7:05 PM

Medallion Bank - Part I

  by SONYA HUBBARD  for Footnoted.org Logo

Most New Yorkers are probably familiar with a company called Medallion Financial Group. Its wholly-owned subsidiary, Medallion Bank, got $11.8 million in taxpayer capital in February through the Treasury Department's Troubled Asset Relief Program.

Medallion's mission statement is:  "In Niches There Are Riches" and - pardon the pun - they're right on the money with that one.

There's a bundle of money to be made on those taxi medallions (that's the tin piece affixed to a car that assures passengers that the city has licensed that particular taxi).  The City of New York strictly limits the number of medallions it issues, and a recent press release notes that a medallion sold for a new record high price of $763,000.

But the quarterly report that Medallion filed May 8 with the Securities and Exchange Commission revealed some interesting information. (Sometimes when it seems like a company is going to extra effort to not disclose something, it's worth digging a little deeper.)  

In the section dealing with related party transactions (section 10), the company's filing states the following:

"A member of the Board of Directors of the Company since 1996 is also of counsel in the Company's primary law firm.  Amounts paid to the law firm were approximately $193,000 and $49,000 for the 2009 and 2008 first quarters."

Any guesses as to whose law firm got $193,000 in the first three months of this year, on top of $404,000 for all of 2008? The unnamed Medallion director is former New York Gov. Mario Cuomo. The firm is Willkie Farr & Gallagher LLP.

Cuomo isn't the only high-profile director for Medallion.  He is joined on the board by fellow luminaries Henry L. Aaron -- better known to baseball fans as "Hammerin' Hank" Aaron -- and former Connecticut Gov. Lowell P. Weicker, Jr.

Medallion's proxy statement - which outlined the fees paid in 2008 to Cuomo's firm - notes that "Mr. Cuomo does not have a direct interest in the payment of such legal fees, but has an indirect interest in such fees as an employee of the law firm."  

Unlike some companies that sold stock to the government through TARP, Medallion is still profitable. The company reported that its increase in net assets from operations was $1.89 million in first quarter, compared with $3.92 million a year earlier.

But when a company is seeking a little government help to see it through hard times, it also can't hurt to have some heavy hitters on board.

 

May 27, 2009 6:18 PM

Washington Federal Approved to Return TARP Funds

  by AVI KLEIN

Washington Federal Inc. has been approved to return the $200 million it received as part of the federal government's rescue of the financial sector.

The Seattle-based savings and loan bank is the first in the Pacific Northwest to redeem the shares it gave the Treasury Department as part of the $700 billion Troubled Asset Relief Program.

Roy M. Whitehead, the bank's chief executive, cited public relations confusion and tougher regulatory restrictions as reasons for backing out of the bailout.

"Investors viewed the funds as debt rather than equity, the public viewed it as a bailout, Congress retroactively added onerous additional restrictions, and the overall cost was substantially higher than other funding sources," Whitehead said in a prepared statement.

Banks wishing to return bailout funding must prove that they would be adequately capitalized without government financial assistance or loan guarantees. Washington Federal said that its tier 1 capital and financial risks ratios - two critical measurements of bank health -- would remain above the minimum standards set by regulators.

In addition to returning the $200 million it received in November, Washington Federal will also pay the Treasury $5.3 million in accrued dividends.
May 26, 2009 12:52 PM

Bank of Granite Withdraws TARP Application

  by AVI KLEIN

Another bank has withdrawn its application to received bailout money.

Despite mounting capitalization problems, North Carolina-based Bank of Granite Corp. decided not to follow through on its attempts to get funding under the Troubled Asset Relief Program,  the Charlotte Observer reported.

Scott Anderson, the bank's chief executive, cited the fear of negative publicity as the reason for pulling its application to participate in the $700 billion bailout program.

"It's gone from the Good Housekeeping seal of approval to the scarlet letter," Anderson said. "Everybody who's calling me is saying, 'I wouldn't bank with you if you took some of that bailout money.'"

However, the Observer reported that Bank of Granite has been struggling to maintain adequate capital ratios, recently lost a line of credit with another bank, and is considering selling off some of its branches.

Only financially sound banks are eligible for bailout funding, and regulators have typically waved off unsuitable applicants before making a determination. Whether or not Bank of Granite received such a signal, or sincerely wanted to avoid the stigma of the TARP program, is not known.
May 25, 2009 12:21 PM

Home Federal the Latest to Return TARP Funds

  by AVI KLEIN

Citing an uncertain regulatory environment, yet another bank has said that it plans to return bailout funding it received under the Troubled Asset Relief Program.

South Dakota-based Home Federal Bank will return the $25 million it received in November as part of the Treasury Department's efforts to shore up the banking system and inject liquidity into the market. It will also pay accrued dividends.

Curt Hage, president of Home Federal, told Keloland Television that it did not want to be subject to the regulatory whims of congress, which in recent months have led to a spate of rules for banks accepting TARP funding, including restrictions on executive pay, dividend payments, and other uses of cash.

"It seems like every time there's new regulation or new bill entered in Congress, the preamble to it is, 'And to those with TARP funding, we're going to do this or that.'  You just never know from one moment to the next what kind of new restrictions are going to be placed on the operation," Hage said.

Returning the money is not an automatic process. The Treasury has said that banks must be able to prove they can survive without the government's financial assistance and loan guarantees.
May 22, 2009 1:20 PM

BankUnited seized and sold

  by CHRIS CAREY

Federal regulators ended months of suspense and seized BankUnited FSB, a struggling Florida thrift with $12.8 billion in assets.

 

The Federal Deposit Insurance Corp. then sold the banking operations to a private equity consortium that includes billionaire turnaround investor Wilbur Ross, retired banking executive John Kanas, The Blackstone Group and The Carlyle Group.

 

The buyers agreed to take most of the failed bank's assets and liabilities, and to inject $900 million in capital into the successor company, BankUnited of Coral Gables, Fla.

 

The old BankUnited had been struggling under the weight of bad home loans. Regulators had given the institution until the end of last year to raise $400 million in additional capital. That could have cleared the way for the Treasury Department to provide another large infusion of cash through the Troubled Asset Relief Program.

 

Kanas, the former chief executive of New York's North Fork Bancorp, will run the new BankUnited. Kanas sold North Fork to Capital One Financial Corp. in 2006, and left the combined company less than a year after that $14.6 billion deal.

 

BankUnited is the 34th financial institution to be shut down by regulators this year, compared to 25 for all of 2008. The FDIC estimated that the failure would cost its insurance fund around $4.9 billion -- the second biggest hit since the economic crisis began.

 

The investors who created the new BankUnited agreed to take $8.3 billion of its deposits and $12.7 billion of its assets. The investors and the FDIC entered into a loss-sharing arrangement on $10.7 billion of those assets, which means the cost to the FDIC could increase.

 

May 21, 2009 5:56 PM

Independent Bank returns TARP money and expands

  by SONYA HUBBARD  for Footnoted.org Logo

In mid-March, BailoutSleuth noted that Independent Bank Corp., the parent of Rockland Trust Company, was thinking about returning the $78.1 million in taxpayer capital it had it borrowed from the Treasury Department just nine weeks earlier.

At that time, President Christopher Oddleifson was quoted as telling The Patriot Ledger in Quincy, Mass. that the government-imposed rules on executive compensation at banks getting money through the Troubled Asset Relief Program could make it harder for the company to retain current managers and recruit new ones.

The bank followed through on that plan and - in fact - had quite a busy month in April.

As this report filed May 8 with the Securities and Exchange Commission shows, on April 22, Independent paid $1,000 a share to buy back the 78,158 shares of preferred stock it had sold to the government. It also paid $727,000 in accrued dividends.

The bank now has the right to repurchase the ten-year warrant it gave the Treasury to purchase up to 481,664 shares of the bank's common stock at a strike price of $24.34 per share.  If it does not repurchase the warrant, the Treasury Department is required by law to liquidate it.

A couple of weeks before Independent repaid the money, it acquired Benjamin Franklin Bancorp, Inc. As of last Monday, 11 Benjamin Franklin bank branches reopened as branches of Rockland Trust.  With those additions, the bank reports that there are now more than 70 branches operating under the Rockland Trust name.

Independent also reported net income of $6.4 million for the three months ending March 31, an increase of 1.3 percent over what it earned in the first three months of 2008.

May 21, 2009 2:11 PM

PNC To Take Its Time Repaying TARP Funds

  by AVI KLEIN

Defying trends set by other large financial institutions this week, PNC Financial Services Group Inc. will not try to immediately return its federal bailout money.

PNC Chief Executive Officer Jim Rohr said in an interview with Bloomberg News that the company plans to "pay it back in more of a medium term, over the next couple of years perhaps."

The company received $7.6 billion under the Troubled Asset Relief Program,  in return for preferred stock that pays the government an annual dividend of 5 percent for the first five years and 9 percent thereafter.

Since the Treasury Department announced the results of its stress tests earlier this month, a number of large financial firms, including Goldman Sachs Group Inc. and Morgan Stanley, have applied to return the money they received from the government.

The decisions to withdraw from the TARP program have been motivated by concerns over restrictions on executive pay, dividend payments, and a general feeling that keeping the money sent a signal that the institution was fiscally unsound.

In order to do pay back the money, however, Treasury has said that banks must be able to prove they will be strong enough without government aid or debt guarantees. They must also pay accrued dividends. Some firms have announced plans to sell stock in order to meet these requirements.

PNC decided that such an approach "would be punitive to shareholders," Rohr said, though he noted that the company would have to sell $600 million of shares in order to shore up its capital base in response to the stress test results.

In October, PNC spent $5.08 billion to purchase Ohio-based National City Corp. in a deal arranged by federal regulators concerned about the latter's health.
May 20, 2009 1:32 PM

Allstate Turns Down TARP Funding

  by AVI KLEIN

Less than a week after being approved for bailout funding, Allstate Corp. has decided not to participate in the program. Meanwhile, a major brokerage firm announced that it would withdraw its application for aid.

Allstate was one of six insurance companies to attempt to qualify for money under the Troubled Asset Relief Program by leveraging existing bank holdings or attempting to buy savings and loan institutions.

Allstate Bank, the firm's retail financial services arm, received its original charter in 1998.
 
Thomas J. Wilson, Allstate's chief executive officer, said the company decided that it was sufficiently capitalized to turn down the possibility of received billions of dollars in bailout aid.

"We applaud the administration's decision to include insurers in the U.S. Treasury's programs," Wilson said in a statement. "Given Allstate's strong capital and liquidity positions, however, we will not participate in this program."

The insurance companies received approval Friday on their preliminary applications. Ameriprise Financial Inc. announced immediately afterward that it was no longer interested, and Prudential Financial Inc. is widely expected to follow suit.

The other approved firms are The Hartford Financial Services Group Inc., Lincoln National Corp., and Principal Financial Group.

In related news, Raymond James Financial Inc. said it was withdrawing its application for TARP funding. In a statement, the Florida-based brokerage said it believed it had "adequate internal funds" and could survive without government aid.

Since the bailout program began, a number of financial institutions have changed their minds about participating, citing concerns about restrictions on executive pay, dividends, and other uses of cash. 
May 19, 2009 3:05 PM

Wolin Confirmed as Deputy Treasury Secretary

  by AVI KLEIN

The U.S. Senate confirmed Neil S. Wolin, a former insurance company executive, as deputy treasury secretary.

Wolin had been serving since February as deputy assistant to the president and deputy counsel for economic policy. From 2001 and 2008, he worked for The Hartford Financial Services Group Inc., a major insurance company, most recently as president and chief operating officer of its property and casualty division.

Wolin also served in various advisory roles in the Clinton administration.

The Hartford is one of a number of insurance companies recently approved to receive bailout funding. It said last week it could receive as much as $3.4 billion from the Troubled Asset Relief Program, but the arrangement is contingent on its ability to close a deal to purchase the troubled Florida-based Federal Trust Bank.

Wolin's confirmation is a step forward for the Treasury Department, which has come under criticism for being understaffed. Officials have cited the Obama administration's strict conflict of interest rules and in-depth background checks as reasons for the delay in hiring.
May 19, 2009 1:12 PM

Three More Firms Pull Out of TARP

  by AVI KLEIN

Three more major financial institutions are seeking to return billions of dollars they received as part of the federal bailout plan.

Jamie Dimon, chairman and chief executive of JPMorgan Chase & Co., said at the company's annual meeting that it should be able to repay the $25 billion it took from the government within the next few weeks.

Goldman Sachs Group Inc. and Morgan Stanley also have applied to redeem the preferred stock they sold to the government through the Troubled Asset Relief Program.  Although neither company made a public announcement, their plans were reported by a number of news organizations, including the Wall Street Journal.

Talks with the Treasury Department about withdrawing from TARP a few weeks ago,  according to the reports. Both companies received $10 billion in bailout money, giving the federal government stock and warrants in return.

Companies seeking to redeem their shares and warrants must prove they are financial stable without government aid. If they borrow money to shore up their capital ratios, they must do so without relying on guarantees from the Federal Deposit Insurance Corp.

JPMorgan Chase, Goldman Sachs and Morgan Stanley all passed the Treasury's stress tests earlier this month and were told they did not need to raise additional capital.

Those tests assumed that the companies would continue to rely on bailout funding. Nevertheless, a Treasury spokesman told Reuters that he expected the applications would be approved expeditiously.

"I would think we're talking a matter of weeks, and probably just a few weeks, because I think Treasury wants the money, or at least some of it," said the spokesman, who was not identified.

JPMorgan Chase, Goldman Sachs and Morgan Stanley are three of the largest financial institutions to request permission to withdraw from the program. Yesterday, State Street Corp., which received $2 billion from the government, said it has begun a stock offering to raise money to redeem the shares held by the Treasury.

Financial firms have cited a number of reasons for wanting to exit the TARP program, including concerns about executive pay, the right to pay dividends, and other business issues.
May 18, 2009 12:10 PM

State Street Announces Plans to Return TARP Funds

  by AVI KLEIN

One of the first banks to receive money under the government's bailout program now plans to return it.

Massachusetts-based State Street Corp. said that it had begun an offering of common stock and notes and would soon notify the Treasury Department of its plans to return the $2 billion it received last year under the Troubled Asset Relief Program.

In order to return bailout money, the Treasury has said that banks must be able to prove that they are stable enough without it. Selling common stock is one way for banks to raise the money they need while also improving their Tier 1 capital ratio - the prime measure of banking stability.

In a statement, State Street said that it would take the money it received from the stock sale and use it to buy back the preferred stock and warrants it gave the Treasury in exchange for bailout funding.

It also announced plans to open a separate public offering of non-guaranteed senior notes in the near future.

State Street was one of 19 banks to undergo the Treasury's recent series of stress tests. Regulators determined that it did not need to raise additional capital.

The bank is only the latest to declare its interest in returning TARP funding. Last week, at least five banks, including Capital One Financial Corp., BB&T Corp., and U.S. Bancorp announced that they would sell shares in order to give back the billions they received as part of the $700 billion bailout program.

Banks have cited an uncertain regulatory environment and concerns about restrictions on executive pay, dividends and other uses of cash as leading reasons for withdrawing.
May 15, 2009 4:26 PM

First United defends community banks

  by SONYA HUBBARD  for Footnoted.org Logo

It's always interesting to read what banks write about their participation in the Troubled Asset Relief Program. Usually, recipients explain why they took the money, or say that they're waiting for more details to decide exactly what to do about those pesky compensation issues.

However, at Maryland-based First United Corp.'s annual meeting of shareholders yesterday, one banker spent a considerable amount of time trying to set the record straight about who's responsible for the nation's economic woes, and -- more to the point -- who's not. (A slideshow of the presentation may be found here in a filing with the Securities and Exchange Commission.)

For those keeping track, the government gave First United a $30 million infusion of capital on Jan. 30. The bank got the money through the Treasury Department's Capital Purchase Program -- part of TARP -- in exchange for 30,000 shares of preferred stock. 

Bill Grant, First United's chairman and chief executive, said in his presentation, "It is important to note that much of this situation was caused by non-bank lenders, such as Countrywide. For the most part, it was not the 8,400 community banks throughout the USA."

Grant then took another swipe at the outside forces that he said exacerbated the problems (slide 38): "I want to clearly emphasize again that much of the cause of the severity of this recession happened far away from most towns and cities of the country, and one needs to look to Wall Street and Washington for the reasons this one has been so tough."

Grant complained that there had been a "tremendous amount of misinformation" about both TARP and the Capital Purchase Program (CPP).

The banks were not at the table when the programs were developed, he said. And moreover, "the CPP program was only to be made available to strong banks." Grant said that while the big banks that got the first wave of government aid were told that they would have to accept, banks like his were "encouraged" to take it. He then said:

"Well, it's strange how politics affects the message. Now banks across the country are vilified for having a government 'bailout.' What is lost in the news is not only the original message, but the fact that CPP must be paid back - with interest. 

Not only will the Treasury get its money back, but it is going to earn 5 percent on its investment. Most projections indicate the government will make a $40-plus billion profit from CPP. And, by the way, there has not been a single default in CPP payments."

Continue reading First United defends community banks.
May 15, 2009 2:48 PM

Treasury Approves Insurers For TARP Aid

  by AVI KLEIN

After a long delay, six life insurance companies have been approved to receive as much as $22 billion in bailout money.

The Treasury Department announced that Hartford Financial Services Group, Prudential Financial Inc., Lincoln National Corp., Allstate Corp., Ameriprise Financial Inc. and Principal Financial Group all qualified for capital infusions under the $700 billion Troubled Asset Relief Program.

However, Ameriprise announced Friday that it would not be taking the government aid.

The insurers, many of which bought savings and loan banks in order to qualify, had received mixed signals about whether they would convince Treasury that they were deserving of assistance.

Life insurance companies have suffered as a result of the economic collapse, with some of them dangerously over-exposed to the mortgage derivatives that caused it. Others simple hoped to use TARP to gain access to an inexpensive source of capital in the midst of a difficult lending environment.

Unlike with the banking sector, where many early participants in the bailout program have since attempted to withdraw out of concern over an uncertain regulatory environment, the insurers have been steadfast in their efforts to access TARP funds.

Last month, Treasury officials indicated that the insurers' applications were likely to be approved, but that they would be considered in the normal course of business along with pending applications from banks.

Until yesterday's announcement, American International Group Inc. was the only insurer to get government help. It received a $150 billion bailout in November in the face of fears that the collapse of the insurance giant could undermine the entire financial system. It has since received an additional $30 billion in aid.

Hartford said that it was poised to receive as much as $3.4 billion. Ramani Ayer, the firm's chairman, called the decision to apply for the money "a prudent step for The Hartford, particularly given the continued economic uncertainty."

Lincoln National said it was approved for $2.5 billion in TARP money. Principal Financial did not specify how much it had been allotted, but previously said it could receive as much as $2 billion.

The Treasury Department is open to considering additional applications from the insurance industry, which "will be reviewed and funded as appropriate on a rolling basis," a spokesman told Forbes.com.
May 15, 2009 9:59 AM

One down, five to go

  by CHRIS CAREY

The Treasury Department finally acted on one of BailoutSleuth's Freedom of Information Act requests, nearly two months after the document in question had already been posted on its web site.

We received an unredacted copy this week of Treasury's contract with Bank of New York Mellon Corp., which was hired in October as master custodian of all the assets flowing in and out of the $700 billion Troubled Asset Relief Program.

Treasury officials have yet to give us a decision on our request for unredacted copies of its contracts with five other TARP contractors. All of the contracts either blacked out or deleted details of those companies' compensation.

BailoutSleuth filed Freedom of Information Act requests for those documents more than six months ago.

We reported in March that we had found an unredacted copy of the Bank of New York Mellon contract on a web site that Treasury had set up to post TARP-related documents.

The original copy that Treasury issued with the contract announcement in October blacked out how much Bank of New York Mellon was to be paid. It also blacked out the formula used to determine that compensation, marking an inauspicious start to Treasury's pledge of transparency.

The letter we received from Treasury this week included a paper copy of the unobscured agreement, and gave us an Internet address where we could view the document online.

BailoutSleuth is still waiting for Treasury officials to decide whether to release unredacted contracts we are seeking with five other legal and financial advisors - EnnisKnupp and Associates Inc.; PriceWaterhouseCoopers LLP; Ernst & Young; Simpson Thacher & Bartlett LLP and Hughes Hubbard & Reed LLP.

The copies of those contracts that Treasury has posted online at www.financialstability.gov still have blacked out or deleted sections where details of those firms' compensation should have been.

Without that information, such as the hourly rates the government is paying for lawyers, accountants and support workers, it is impossible to tell whether taxpayers are getting a good deal.

  

May 14, 2009 12:34 PM

E-mails Show Banks Pressured Into Taking Bailout Money

  by AVI KLEIN

The Bush administration told major banks that it had no choice but to sign up for its financial industry bailout program, according to documents released this week by a judicial oversight group.

In a set of talking points from a meeting with banking executives on Oct. 13, former Treasury Secretary Henry M. Paulson Jr. told them that the government did not believe that their balance sheets could remain viable without a capital infusion and that, if they refused, "your regulator will require it in any circumstance."

Whether or not banks were forced into the Troubled Asset Relief Program has been an outstanding question since the $700 billion bailout effort began. The talking points, which were released in response to a Freedom of Information Act request by the conservative watchdog group Judicial Watch, are the first evidence that Treasury leaned on the banks to participate.

"These documents show our government exercising unrestrained power over the private sector," said Judicial Watch President Tom Fitton in a statement accompanying the released documents.

The Treasury Department initially resisted releasing details of the October meeting, Judicial Watch said. Although it eventually relented, suggested edits of the talking points by Timothy F. Geithner, at the time the president of the New York Fed Reserve Bank, were withheld. Geithner now serves as treasury secretary.

Judicial Watch also released e-mails showing Bush administration officials scrambling to repair the damaged financial sector while at the same time struggling with the public relations aspects of handing over billions of dollars to the same financial institutions responsible for the meltdown.

On the day of the meeting with the nine largest financial institutions, for instance, James R. Wilkinson, the chief of staff for the Treasury Department, e-mailed staffers to ask "who the Big 9 are? What are the specific companies?"

According to Judicial Watch, the banks represented at the meeting were Citigroup Inc., JP Morgan Chase & Co., Wells Fargo & Co., Merrill Lynch & Co., Inc., Morgan Stanley, The Goldman Sachs Group, Inc., The Bank of New York, and State Street Corp.

That same day, another e-mail exchange shows Treasury officials wondering if the Secret Service can close off a sidewalk outside the meeting to help the banking officials evade a group of cameramen outside.

The released e-mails also show how attentive the White House was in keeping both presidential candidates informed of the ongoing bailout efforts. A message from Wilkinson that evening to White House staff shows that the government had succeeding in briefing Barack Obama on the meeting but had failed to connect with John McCain.
May 13, 2009 8:43 PM

Treasury completes more bank investments

  by CHRIS CAREY

The Treasury Department completed investments in seven more banks, all of them privately held.

The latest deals used roughly $42 million of the $700 billion allocated for the Troubled Asset Relief Program.

Sword Financial Corp., of Horicon, Wis., got the biggest portion of the money. The parent company of Horicon Bank sold $13.6 million in subordinated debentures to the Treasury Department. The government has been buying debentures instead of preferred stock in certain types of banks participating in the TARP initiative.

Premier Bancorp Inc., of Wilmette, Ill., got $6.78 million, while Gateway Bancshares Inc., of Ringgold, Ga., got $6.0 million. The government bought debentures from Premier and preferred stock from Gateway.

One Georgia Bank, of Atlanta, got $5.5 million in taxpayer capital. Investors Financial Corporation of Pettis County Inc., based in Sedalia, Mo., got $4.0 million and Highlands State Bank, of Vernon, N.J., got $3.09 million

Freeport Bancshares Inc., of Freeport, Ill., sold $3.0 million in  debentures to the government.

May 13, 2009 3:30 PM

TARP Distribution Wider Than Previously Believed

  by AVI KLEIN

The distribution of bailout money is wider geographically that previously believed, according to a new analysis by a nonpartisan oversight group.

A new interactive map released this week by the Sunlight Foundation, a non-profit group that focuses on improving public access to government information. According to its researchers, previous attempts to map bailout recipients erred in assigning funds based on financial institutions' corporate headquarters.

That approach, which was used by the Treasury Department in creating its own local-impact map, makes it appear that most funding under the Troubled Asset Relief Program went in significant proportion to states on the east and west coasts.

According to the Sunlight Foundation, while Treasury's conclusions were broadly true, it noted in its analysis that "using a bank's headquarters to map its reach is of questionable utility given that many financial institutions affect communities well outside of the state in which their headquarters is located."

This is particularly true for online mortgage lenders and nationwide banks. Citigroup Inc., for instance, issues loans in nearly every county in the country, even though its retail business is much more limited.

By failing to take account of national banking trends, the Sunlight Foundation says, the Treasury's Local Impact map understates TARP's impact in critical regions. Among other errors, it shows that Arizona, which has among the highest foreclosure and mortgage-delinquency rates in the country, received only $2.5 million in TARP funding, while the state of Montana received no funding at all.

Looking at the issue from the branch level, however, shows that both states did receive large amount of bailout money -- via banks that are headquartered in other states. By scrolling the cursor over the map, the user can see the number of branches in each county that benefited from the bailout.

The Sunlight Foundation created its map in cooperation with The Pew Charitable Trusts. Their report appears on Subsidyscope.com, a site that Pew's economic policy department created in December.

Using data provided by the Federal Deposit Insurance Corp. and mortgage regulators, the map also provides the percentage of local deposits held by TARP recipients, and shows recent loan activity by those banks.

In Maricopa County, Arizona, for instance, banks that got TARP money operate 621 branches, making up 77 percent of all local branches. They hold deposits of $42.8 billion, or 82 percent of the total, and since 2007 have originated 88,105 home loans, or 42 percent.
May 12, 2009 12:43 PM

TARP Withdrawals Continue As Two More Return Funds

  by AVI KLEIN

Two more banks announced plans Monday to return bailout money, citing heightened government oversight and their own strong balance sheets as reasons to withdraw.

New York-based Alliance Financial Corp. said it plans to buy back the $26.9 million worth of stock it sold the government late last year. It will also pay an additional $329,000 in accrued interest.

Numerous banks over the past few months have expressed interest in returning the money they received under the Troubled Asset Relief Program. To do so, Treasury Department officials say banks must be able to prove they are sufficiently capitalized to survive without it.

Alliance Financial cited regulatory restrictions and a changed perception of what the program was intended to do.

Originally intended to provide liquidity to stable banks, TARP has "subjected participants to restrictions and regulatory burdens that place Alliance at a competitive disadvantage to financial institutions which do not participate in the program," Jack Webb, Alliance's chief executive officer, said in a press release.

South Carolina-based SCBT Financial Corp. pointed to regulatory issues as a reason for its decision on Monday to return the $64.8 million in bailout money it received.

"We only took it with an abundance of caution," Robert Hill Jr., the bank's chief executive officer, told The State, a newspaper in Columbia, S.C. "Then, clearly the rules and sentiment around the TARP changed after the fact.

SCBT also announced an offering of 1.15 million new shares of common stock, which at current prices would raise more than $27 million.

At least twelve banks have already redeemed the shares they sold to the government, and many more, including two others this week alone, have announced plans to do so.
May 11, 2009 2:36 PM

Three Additional Banks Pull Out of TARP

  by AVI KLEIN

The momentum to escape Treasury Department oversight has accelerated, with three more banks deciding to return the money they received under the Troubled Asset Relief Program.

Capital One Financial Corp., BB&T Corp., and U.S. Bancorp announced that they would sell shares in order to give back the billions they received as part of the $700 billion bailout program.

Federal regulators said last week that all three had passed the stress tests designed to see how they would fare in a deeper downturn, and did not need to raise more capital. It has been widely expected that companies that passed the test would move quickly to withdraw from the TARP program.

BB&T Corp., based in North Carolina, said it had reduced its dividend by 68 percent to conserve cash and would seek to raise $1.5 billion through a public offering. It owes the government $3.1 billion in bailout money plus accrued dividends.

"We firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant," said Kelly King, BB&T's chief executive officer. He called the decision to cut the dividend "the worst day in my 37-year career."

Capital One announced similar plans, promising to sell 56 million shares to raise as much as $1.5 billion. It owes $3.5 billion plus dividends. U.S. Bancorp plans to sell enough stock to raise $2.5 billion. That will go toward the $6.6 billion it owes the government.

At least 12 banks have already redeemed the preferred shares they sold to the government. Several other financial institutions, including Texas Capital Bancshares Inc. and City National Corp., are in the process of paying back their TARP money.
May 9, 2009 11:43 AM

Another bank goes under

  by CHRIS CAREY

Regulators closed Westbound Bank in Bremerton, Wash., making it the 33rd to fail this year.

The Washington State Department of Financial Institutions shut down the bank and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC arranged for Kitsap Bank, of Port Orchard, Wash., to take over Westbound's branches and most of its deposits.

The failed bank had $304.5 million in deposits and $334.6 million in total assets.

Kitsap Bank bought $49.3 million in Westbound's assets, consisting of cash, marketable securities and loans backed by deposits. The FDIC retained the remaining assets for later sale.

The FDIC estimated that the closing would cost its insurance fund $108 million.

May 8, 2009 5:48 PM

FDIC to open satellite office in the Southeast

  by CHRIS CAREY

In another sign of times - and possibly of things to come - the Federal Deposit Insurance Corp. is opening a temporary office in Jacksonville, Fla., to help liquidate the assets of failed banks.

The FDIC said the office would employ as many as 500 people and would deal primarily with the remains of seized financial institutions in the eastern United States.

The FDIC uses the temporary offices during times of economic crisis to keep its asset-resolution workers in closer proximity to the failed banks they are overseeing.

Of the 32 banks that have closed this year, six have been in Georgia and two have been in Florida. Six additional banks in those states were seized in the second half of 2008.

The FDIC said it expects to move into its leased offices in Jacksonville in September.

May 8, 2009 2:49 PM

Stress Tests Results Show Troubled Days Ahead

  by AVI KLEIN

Despite apparent stability in the housing market, the nation's banks stand to lose billions of dollars in other kinds of loans, according to the results of the stress tests released by the federal government

In its report, the Federal Reserve said the 19 largest banks under scrutiny face losses up to $599 billion if the economy continues to deteriorate. Bank of America Corp. and Citigroup Inc.

The stress tests examined what would happen to the banks' balance sheets if unemployment grew and the economy contracted more than expected.

The Federal Reserve concluded that nine of the 19 banks had adequate cushions. Others that were ordered to raise additional capital have already begun. Wells Fargo & Co. and Morgan Stanley said Friday that they had raised $7.5 million each through stock or bond sales. But the stress test report still offered stark warnings about an economy under stress and vulnerable to further consumer setbacks.

Analysts have long warned that the stabilization of the housing industry was a necessary but insufficient step toward repairing the banking sector. The Federal Reserve report added numbers to these concerns, showing that some banks face a coming wave of defaults on credit card and commercial loans.

Citigroup, for instance, is at risk of losing $19.9 billion from its credit card loans. According to the Federal Reserve, the bank's loss rate in the sector could top 23 percent of outstanding credit card loans.  

Wells Fargo could lose $6.1 billion on its credit card loans, or 26 percent of its portfolio.

Commercial loans present a problem as well. Regions Financial Corp., another of the banks that was ordered to raise capital, could lose $4.9 billion on its commercial real estate loans in the Federal Reserve's worst-case scenario. That translates to a loss rate of 13.7 percent.

Fifth Third Bancorp stands to lose $2.9 billion on its commercial real estate loans, which would amount to 13.9 percent of its total for that category.

These potential problems raise important questions about whether these companies will be able to survive if the economy deteriorates beyond the Federal Reserve's assumptions. Should the economy contract even further, default rates are likely to go up across the board, challenging the banks' ability to maintain adequate capital levels.
May 7, 2009 7:14 PM

Stress-test banks need to raise $75 billion

  by CHRIS CAREY

Federal officials say the big banks they subjected to lengthy government stress tests will need to raise $75 billion in additional capital as a cushion against a deeper economic downturn.

The Federal Reserve, the Federal Deposit Insurance Corp. and the Comptroller of the Currency said in their findings that 10 of the 19 banks it analyzed will be required to raise more capital.

The list of financial institutions that need more capital include Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Morgan Stanley and GMAC LLC. Five regional banks, led by Regions Financial Corp., also must raise more cash.

Regulators say Bank of America will need to raise about $34 billion, and Wells Fargo will need roughly $14 billion. 

The companies that were judged to need no additional capital included Goldman Sachs & Co., JPMorgan Chase & Co., U.S. Bancorp and American Express Corp.

To see the report, click here.

We are still analyzing the findings and will be back with more details.

May 7, 2009 2:15 PM

Oversight Panel: TALF Program Not Enough To Spur Consumer Lending

  by AVI KLEIN

A Treasury Department initiative to spur consumer lending may not meet expectations, according to a new oversight report.

In a 172-page report, the Congressional Oversight Panel said that the Term Asset-Backed Securities Loan Facility, or TALF, has potential but "cannot be the primary means to stimulate credit for small business and family borrowing."

The report also echoed long-standing concerns that the program places too much risk on taxpayers, while shifting most of the potential profits to private investors.

The TALF program works by packaging consumer loans, including auto and credit card debt, into securities to be sold on the open market. The intent is to create liquidity by providing a way for lenders to sell the loans they make and reduce their exposure to default.

According to the oversight panel, the securitization market has contracted dramatically, with the annual rate of activity in the first quarter of 2009 running at a level 80 percent below the level in 2007.

The plan provides up to $100 billion in funding for investors, with the federal government taking a small share in each investment. But if the securitized loans decrease in value, taxpayers could take a major loss.

So far, however, investors have shown mixed interest in the program. In April, Treasury lent only $1.7 billion out of the $20 billion in available funds for the month. In May, the numbers improved to $10.5 billion.

The oversight panel said one of the main reasons for the unexpectedly low interest was a developing market for securitized assets outside the TALF program.

"This is an important reminder that the success of TALF in generating additional small business and family credit should not be judged solely by the volume of TALF transactions," the panel said.

Officials also cited concerns about potential restrictions on executive pay for companies that participate. Similar concerns have prompted companies to avoid or withdraw from another major bailout program focused on banks, the Troubled Asset Relief Program.

"Under those conditions," the panel said, "it is difficult to predict at what rate the demand for TALF loans will increase."
May 7, 2009 11:40 AM

Sterling Bancshares the Latest to Return TARP Money

  by AVI KLEIN

As the Treasury Department prepares to announce new rules for banks seeking to withdraw from the bailout program, another bank has returned the taxpayer capital it received under the Troubled Asset Relief Program.

Texas-based Sterling Bancshares Inc. announced this week that it paid the Treasury Department $126.6 million, an amount equal to the bailout money it received plus $1.4 million in accrued dividend payments.

"We are extremely pleased to be the first bank in Texas, and among the first banks in the country, to repay the TARP investment," said J. Downey Bridgwater, Sterling's chief executive officer.

Sterling bank did not give a reason for its decision to exit the program. But many banks that have followed the same path cited an uncertain regulatory environment and concerns about restrictions on executive pay and other spending.

Treasury is preparing to announce a streamlined set of procedures for banks seeking to return bailout money. The new rules are expected to set out standards by which the banks can prove they will survive without government support.

Sterling is the 12th bank to redeem preferred stock issued to the government through the TARP initiative. The total amount of bailout money those banks repaid was just over $1.16 billion.

More than 550 financial institutions have received taxpayer capital through TARP. The total amount of money the Treasury Department has invested in those banks, net of repayments, stands at $198 billion.
May 6, 2009 5:17 PM

Banks With Executives on Regional Feds More Likely to Get Bailout Funding

  by AVI KLEIN

Banks seeking bailout money are five times more likely to get it if a top executive is also a regional Federal Reserve director, according to an analysis of the Treasury Department's decision making.

According to FinCri Advisor, 44.5 percent of banks with top executives on the board of a Federal Reserve Bank were approved for money through the Troubled Asset Relief Program, compared to 8.3 percent of all eligible U.S. banks.

FinCri advisor is a news website focused on the challenges facing the banking industry.
 
The Troubled Asset Relief Program, or TARP, is the Treasury Department's overarching financial bailout program. The Capital Purchase Program, or CPP, is the part of the package focused on improving bank liquidity by using government money to buy stock in participating institutions. The government has dedicated $700 billion to the TARP initiative, including $250 billion for the CPP.

FinCri identified 74 top bank executives who sit on the boards of the 12 regional Federal Reserve Banks. Thirty three of the banks run by those executives were approved by Treasury to sell stock to the government.

The approval percentages were higher for banks whose executives sit on East Coast branches of the Fed. According to FinCri Advisor, three out of three banks with executives on the Boston branch received TARP funding, as did five of seven in the same position in the Richmond district, and seven out of 12 in the Atlanta district.

Banks with executives on the Minneapolis and Dallas Fed boards did not receive any bailout funds. However, none of the banks with executives on those boards applied for government aid.

BailoutSleuth duplicated FinCri's research. We noted that three other banks whose top executives served on regional Fed boards were part of larger multi-bank holding companies that got TARP money.

FinCri did not include them. Nor did it include two other banks -- Bank of America Corp. and Wells Fargo & Co. -- with representatives on regional Fed boards. It said those executives were not involved in high-level decision making at those banks, which were two of the biggest TARP recipients

Several executives who sit on regional Fed boards and whose banks got TARP money dismissed the apparent connection, telling FinCri Advisor that the Fed was not involved in their selection process.

One noted that the people chosen for the regional Fed boards are typically accomplished bankers, which could mean their companies are more likely to meet the government's criteria for investment.

FinCri reported that one bank with an executive on the regional Fed received TARP money just days after it signed an agreement with the Comptroller for the Currency to shore up its capital position and halt "unsafe and unsound banking practices."

Florida-based Seacoast Banking Corp. accepted $50 million in TARP funding in December, just three days after signing that agreement. Seacoast's chairman and chief executive, Dennis S. Hudson III, is a director of the Atlanta branch of the Fed.

Although the TARP program is intended to shore up the banking sector by injecting government capital, the program is intended for "healthy'' banks with relatively strong balance sheets. That raises questions about why a financial institution with ongoing regulatory problems would qualify.

Neil M. Barofsky, the inspector general for TARP program, said last month he was conducting an audit to determine whether political pressure or other outside influences played any role in determining which banks got bailout money.
May 6, 2009 12:29 PM

AIG Bonuses Four Times Higher Than Originally Believed

  by AVI KLEIN

American International Group Inc. paid out more than $454 million in bonuses last year, almost four times as much as it had previously reported.

Responding to questions from Rep. Elijah Cummings (D-Md.), the insurance and investment giant detailed how much it paid to employees of six of its divisions, as well as payments that were distributed companywide.

These payments are separate from the $165 million in retention payments that the company announced earlier this year it was contractually obligated to pay to employees of its financial products division.

That division was responsible for creating and marketing the complicated derivatives products that eventually threatened to bankrupt the company.

The decision to pay them retention bonuses out of the $170 billion that the firm had received in government bailout money caused a major public outrage, and at least some AIG employees opted not to accept them.

The $454 million in bonuses described in the letter to Cummings cover payments to workers at all of AIG's operating units around the world. The averages by unit ranged from $5,403 per worker at AIG's property and casualty business, to $51,206 per worker at the company's asset management business. The average for all workers was less than $9,000.

Those payments also are separate from the roughly $1 billion in retention payments that AIG distributed to induce workers to remain with the troubled company.

Politico.com, which first reported the new bonus figure, said AIG told it March that 2008 bonus payments -- excluding retention agreements -- totaled $120 million.
 
That number itself was surprising because in testimony before Congress earlier that month, AIG Chief Executive Edward Liddy said that the firm had paid out only $9 million in bonuses.

A spokesman for AIG told Politico that the discrepancies resulted from how the question had been posed to the company.

AIG was asked in March: "What was AIG's total bonus pool (outside the retention agreements) for 2008?" It answered $120 million. AIG has since said that figure represented payments only to its highest-ranking executives.

The $454 million figure came in response to a list of questions submitted by Cummings.

AIG was asked, "Please specify the exact amount in bonuses -- not retention payments or any other form of compensation -- paid by AIG to employees of any division of AIG in 2008 or paid in 2009 for work performed in 2008."

An AIG spokesman said the $454 million "reflects all types of variable compensation across all of our businesses," Politico reported.
May 5, 2009 11:49 PM

Treasury completes seven more bank investments

  by CHRIS CAREY

The Treasury Department completed seven more bank investments, totaling $41.5 million.

Village Bank and Trust Financial Corp., of Midlothian, Va., sold $14.7 million worth of preferred stock to the government through the Troubled Asset Relief Program. The publicly traded company has 15 branches in four Virginia counties.

Village Bank's earnings for 2008 were down 53 percent from 2007, largely because of higher provisions for loan losses. The company posted a loss of $75,000 for the first quarter of 2009, compared to a profit of $93,000 a year earlier.

Security State Bank Holding Co., of Jamestown, N.D., got $10.7 million in taxpayer capital. The closely held company sold subordinated debentures to the government, in place of stock.

OSB Financial Services Inc., based in Orange, Texas, got $6.1 million in TARP funds. Georgia Primary Bank, of Atlanta, sold $4.5 million in stock to the government. HPK Financial Corp., the parent of Hyde Park Bank in Chicago, sold $4 million in stock.

Union Bank & Trust Co., of Oxford, N.C., received $3.19 million in taxpayer capital, while CenterBank in Milford, Ohio, got $2.25 million.

May 5, 2009 12:05 PM

Senate Rejects Bill to Ease Path to Return TARP Funds

  by AVI KLEIN

The U.S. Senate defeated a bill that would have made it easier for recipients of bailout money to return it to the Treasury Department.

The bill was sponsored by Sen. David Vitter, a Republican from Louisiana, and failed by a vote of 53-39. It was introduced as an amendment to the banking regulation bill currently working its way through Congress.

The bill would have given banks that accepted funds under the Troubled Asset Relief Program the right to return it if they proved they were well-capitalized enough to survive without it.

It also would have removed the requirement that the banks "repurchase warrants owned by the federal government at market prices as a condition of the repayment," Dow Jones Newswire reported.

Since the TARP program began last year, an increasing number of financial institutions have changed their mind about participating, with some stepping back before accepting the money, and others attempting to return it as soon as possible.

Most banks have cited restrictions on executive pay and concerns about unpredictable regulatory policy as the reasons for wanting to withdraw.

Under current law, banks may apply to Treasury to return the money but are not guaranteed permission. Critics of the Vitter bill said that it contained overly broad language about the requirements to qualify as healthy, which might have made it too easy for banks to withdraw from the program.

A vote on the banking regulations bill is expected early next week.
May 4, 2009 9:23 PM

Two more banks seeking to repay TARP money

  by CHRIS CAREY

Two more banks have announced plans to pay back the taxpayer capital they received through the Treasury Department's Troubled Asset Relief Program.

City National Corp., the Los Angeles-based parent of City National Bank, said it intended to sell roughly 2.7 million shares of its common stock in public offering.

City National said it would use the proceeds to help retire the $400 million in preferred stock and accompanying warrants that it sold to the government in November.

City National has branches in the Los Angeles area, the San Francisco Bay area, Nevada and New York City.

Texas Capital Bancshares Inc. said it was offering of 3.5 million shares of its common stock. The company is based in Dallas and also serves Fort Worth, Houston, Austin and San Antonio. 

Texas Capital got $75 million in public money in January. The Treasury has injected $200 billion into American banks through a TARP initiative called the Capital Purchase Program.

 "With the consummation of this offering, we will be well positioned to continue to follow our quality growth strategy and to redeem the Capital Purchase Program funds when permitted by the regulators,'' said George Jones, Texas Capital's chief executive. "We have a strong capital base and the potential to take advantage of attractive opportunities within the Texas market.''

May 1, 2009 7:20 PM

Homeowners say California mortgage-modification company fleeced them

  by CHRIS CAREY

Tammi Della got hit with a double economic whammy.

 

First, the housing market collapsed, leaving her family-owned construction business with little work. Della and her husband, who live in La Plata, Md., were forced to divert money from their household budget to help maintain the company's liability insurance, workers' compensation coverage and other necessities.

 

Then, a California firm that offered to help Della modify her mortgage and reduce her monthly payments took $1,000 as an upfront fee but did nothing to help her.

 

Della is one of hundreds of people around the country who sent as much as $3,900 each to National Home Loan Assistance Program, based in La Jolla, Calif. Despite its official-sounding name, the company has no connection to the Treasury Department's $75 billion program to aid struggling homeowners.

 

That widely publicized plan to help homeowners reduce their mortgage payments has given rise to a number of purported assistance companies that are preying on the desperate by promising aid they do not deliver.

 

The Federal Trade Commission said earlier this month that it had launched five enforcement actions against companies offering mortgage modification or foreclosure rescue services. The agency said it sent warning letters to 71 other firms, saying they might be engaged in deceptive marketing.

 

NHLAP was not among the companies hit with enforcement actions. But according to the accounts that its clients provided to BailoutSleuth, its program was particularly insidious. People who signed up were told to stop making payments on their homes, because lenders would be more willing to deal if they were more than 30 days behind. They also were told not to communicate with their mortgage companies, because NHLAP would be negotiating on their behalf.

 

By the time some homeowners figured out that NHLAP had taken their money and delivered no results, they were already in foreclosure.

 

Corey Schmitt, a building contractor in Manchester, Mich., told BailoutSleuth he paid $2,995 to NHLAP last October after a representative called him out of the blue with an offer of help. He didn't have the money, so he borrowed it from his parents

 

After he sent his application and his check, he tried repeatedly to contact NHLAP to find out about the status of his mortgage modification. No one returned his calls.

 

"I should have known better," Schmitt said. "But I needed to do something fast."

 

Schmitt is now in bankruptcy, trying to save his house through a court-supervised reorganization.

 

The San Diego County District Attorney's office is investigating NHLAP, after getting numerous complaints from its clients. The company's activities were first uncovered by a San Diego television station, XETV (To see reporter John Mattes' stories, click here).

 

BailoutSleuth discovered NHLAP because one of the people implicated in its activities, Ralph Spina, is now with another San Diego-area business that was the subject of two stories by our affiliate site, Sharesleuth.com (to see the stories, click here and here).

 

Continue reading Homeowners say California mortgage-modification company fleeced them .
May 1, 2009 6:56 PM

Three more banks fail

  by CHRIS CAREY

Regulators closed three more banks, including Silverton Bank of Atlanta, which primarily served other financial institutions.

Thirty two banks have failed so far this year, compared with 25 for all of 2008.

The Office of the Comptroller of the Currency shut down Silverton and appointed the Federal Deposit Insurance Corp. as receiver. No buyers could be found for the bank, so the FDIC will be winding down its operations.

Silverton did not take deposits from the general public or make consumer loans. Instead it provided a variety of services to other banks, including credit card operations, investments, and the buying and selling of loans.

It served roughly 1,400 client banks in 44 states. Silverton had $3.3 billion in deposits and $4.1 billion in total assets. The FDIC estimated that Silverton's failure would cost its insurance fund $1.3 billion - the biggest hit to that fund so far this year.

The Utah Department of Financial Institutions closed American West Bank, of Logan, Utah, and appointed the FDIC as receiver. It arranged for Cache Valley Bank, also of Logan, to take over the bank's branches and deposits.

American West had $284.1 million in deposits and $299.4 million in total assets. Cache Valley received a discount of $352,000 to buy the deposits. It also bought other assets for $10.9 million, and got a 30-day option to buy the failed bank's loans at book value.

Cache Valley's own balance sheet was bolstered in December with $4.77 million in taxpayer capital through the Treasury Department's $700 billion Troubled Asset Relief Program.

The New Jersey Department of Banking and Insurance closed Citizens Community Bank, of Ridgewood, N.J., and appointed the FDIC as receiver. North Jersey Community Bank, of Englewood Cliffs, agreed to take over the failed bank.

Citizens Community had $43.7 million in deposits and $45.1 million in total assets. North Jersey Community paid a premium of 0.67 percent to acquire the deposits. It also bought $11.5 million of the failed bank's assets.

The FDIC said the closings of American West and Citizens Community would cost its insurance fund around $137.5 million.

May 1, 2009 12:49 PM

Three More Banks Reverse Course on TARP

  by AVI KLEIN

Two more banks have decided to reverse plans to accept bailout money, while a third announced its intent to give back the money it already received.

Alabama-based Pinnacle Bancshares Inc., in its quarterly shareholders report, cited "the constraints of this program" and an "uncertain political climate" in deciding not to follow through on the already-approved $4.8 million capital infusion.

Since the Treasury Department began allocating money from the $700 billion Troubled Asset Relief Program last year, a number of financial institutions that took government aid have changed their minds and sought to pay it back.

Other banks withdrew their applications while waiting for approval.  Concerns about bad public relations and restrictions on executive pay and shareholder dividends have been the most common reasons.

Tennessee-based Magna Bank said it plans to return its bailout money as soon as possible.  According to the Memphis Daily News, the bank no longer sees the $14 million it received as a business advantage.

"It's nice to have the extra capital, but there's a stigma attached to the TARP money now that didn't used to be there. It's now perceived to be bailout money," Magna's chairman, Kirk Bailey, told the paper.

"We didn't view it that way when we took the money in December. We viewed it as additional capital to try to grow the franchise and do the things that government wanted done to grow the economy."

A third bank, AmericanWest Bancorp also announced a change of plans in its earnings report, saying that it would withdraw its application for $57 million in bailout funding.

The bank, based in eastern Washington, said it made the decision mainly because it was unable to raise sufficient private equity to match the government's contribution. It said it would continue talks with private investors to shore up the company's equity position.
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