June 2009 Archives

June 30, 2009 12:07 PM

Small Banks Continue to Seek TARP Funding

  by AVI KLEIN

While larger banks rush to return bailout money received months ago, smaller banks show continued interest in the Troubled Asset Relief Program, with at least 11 taking a total of $96 million in government assistance in the past few weeks.

Suburban Illinois Bancorp, Inc. received the largest chunk of the recently disbursed funds, getting $15 million from the Treasury Department. The bank has more than $674 million in assets.     

Minnesota-based Duke Financial Group, with assets of $743 million, received $12 million, as did California-based Farmers Enterprises Inc. Farmers has $734 million in total assets.

Other banks receiving money included University Financial Corp. ($11.9 million), M&F Bancorp ($11.7 million), Century Financial Services Corp. ($10 million), RCB Financial Corp. ($8.9 million), Biscayne Bancshares Inc.  ($6.4 million), Merchants and Manufacturers Bank Corp. ($3.5 million), Manhattan Bancshares Inc. ($2.6 million) and NEMO Bancshares Inc. ($2.3 million).

The ongoing interest in TARP funding by small banks stands in sharp contrast to the behavior of most of the large banks that have received the largest amount of bailout assistance. The bigger financial institutions, such as Morgan Stanley and Citigroup Inc., have moved to get out of the program as soon as possible, citing regulatory restrictions on executive pay and dividend payments.

But smaller banks, most of which have lower compensation levels and fewer shareholders, are not as concerned about these regulatory fetters. Instead, they see  TARP as an inexpensive way to raise capital in an uncertain economic environment.

"One of the only other options is to borrow from large banks and, frankly, they're not in the market to do that," Steve Anderson, chief executive of River Valley Bancorporation, told the Wall Street Journal last week. River Valley received $15 million in TARP funding.
June 29, 2009 2:29 PM

State Street Faces New Problems

  by SONYA HUBBARD  for Footnoted.org Logo

On June 9, State Street Corp. repaid the reasury Department $2 billion that it received through the Troubled Asset Relief Program.

Now the bank is making headlines again, but for very different reasons.

Early this morning State Street Corp. filed a document with the Securities and Exchange Commission which disclosed that last Thursday the SEC served it with a Wells Notice.

The notice was delivered to State Street Bank and Trust Co., whose State Street Global Advisors unit as been hit numerous suits related to bond funds that suffered heavy losses because of investments in securities backed by subprime mortgages.

The filing adds:

"The notice relates to an ongoing SEC investigation into disclosures and management by State Street Global Advisors of certain active fixed-income strategies during 2007 and prior periods. The Wells notice informs State Street that the SEC staff intends to ask the SEC Commissioners for permission to bring a civil enforcement action for possible violations of the securities laws. State Street has been cooperating with the SEC in this inquiry and continues to cooperate with the Massachusetts Secretary of State, the Massachusetts Attorney General and other regulators in their related inquiries. Under the process established by the SEC, State Street will have an opportunity to present its perspective on these issues before any formal decision is made on an enforcement proceeding."

We will follow the matter and report on additional developments.

 

June 29, 2009 11:28 AM

Treasury Sets Procedure for Warrant Repurchases

  by AVI KLEIN

The Treasury Department announced the procedure for banks seeking to redeem stock warrants sold to the government under the Troubled Asset Relief Program.

As part of the $700 billion bailout program, hundreds of banks gave the Treasury stock and stock warrants in exchange for financial assistance. Over the last few months, an increasing number have repurchased the share and paid accrued dividends.

The banks see the repurchase of the warrants as the last step to get out from under the TARP program and an uncomfortable regulatory environment that includes restrictions on executive pay and the distribution of dividends. How to value the warrants, however, has proved a tricky question.

Under the announced terms of the Capital Purchase Program, a $250 billion endeavor under the TARP umbrella, banks that have already redeemed the stock they sold the government have 15n days to submit their own valuation of the warrants.

Treasury then has 10 days to accept the bank's valuation or initiate a cooperative appraisal process in which both the bank and Treasury name independent appraisers to evaluate the claim. If the two fail to agree, a third independent appraiser is to be named and "a composite valuation" of all three will determine the final value.

In a sign that Treasury is eager to get the warrants of its books, Treasury also laid out the procedure for selling the warrants if the banks do not want to buy them back. Under that scenario, the government will auction them off in a procedure to be announced soon.

According to Treasury, the department considered holding the warrants to attempt to realize greater profits, but "there was no certainty that we would realize higher values, and it was not appropriate for the government to be exercising discretionary judgment on timing market sales."
June 27, 2009 7:48 AM

A big day for bank closings

  by CHRIS CAREY

Regulators closed five banks on Friday, the biggest single-day total since the economic crisis began. The biggest of the five was Mirae Bank, of Los Angeles, which had $456 million in assets.

 

The latest closings bring the total for the year to 45, compared with 25 for all of 2008.

 

The California Department of Financial Institutions seized the bank and appointed the Federal Deposit Insurance Corp. as receiver. It arranged for Wilshire State Bank, also of Los Angeles, to take over the failed bank's five branches and all of its $362 million in deposits.

 

Wilshire State Bank also bought roughly $449 million of Mirae's assets, with the FDIC agreeing a loss sharing arrangement on $341 million of that total.

 

Georgia regulators closed the Community Bank of West Georgia, in Villa Rica, Ga., and Neighborhood Community Bank, in Newman, Ga. Because nobody was willing to take over the Community Bank of West Georgia's operations, its $182.5 million in insured deposits will be paid out to customers.  

 

The FDIC arranged for CharterBank, of West Point, Ga., to take over the four branches and $191.3 million in deposits of Neighborhood Community Bank. CharterBank also agreed to buy $209.6 million in assets, with $178.5 million subject to loss-sharing arrangements.

 

The Minnesota Department of Commerce closed Horizon Bank, in Pine City, Minn., and appointed the FDIC as receiver. It arranged for Stearns Bank, of St. Cloud, Minn., to buy the bank's two offices and $69.4 million in deposits.

 

Stearns Bank paid a 0.75 percent premium for the deposits. It also agreed to buy $84.4 million of Horizon Bank's assets, with $65.1 million covered by a loss-sharing deal. Stearns previously took over another failed bank, Alpha Bank & Trust, in Georgia. That deal last October also was brokered by the FDIC.

 

The fifth bank to be closed Friday was MetroPacific Bank, of Irvine, Calif. California regulators seized that insititution and appointed the FDIC as receiver. It arranged for Sunwest Bank, of Tustin, Calif., to take over MetroPacific's single office, as well as all of its non-brokered deposits and nearly all of its $80 million in assets.

 

The FDIC said the latest found of bank closings will cost its insurance fund around $264.2 million.

 

 

June 26, 2009 3:21 PM

Bailed-Out Bank Considers Asking For Second Round of Funds

  by AVI KLEIN

A bank that received $300 million in bailout funding last year is considering asking for $290 million more as part of an aggressive drive to shore up its balance sheet.

Michigan-based Citizens Republic Bancorp announced that it was calling a special shareholders' meeting to consider "multiple capital raising alternatives" in response to deteriorating economic conditions.

The worries at Citizens Republic are the latest sign that not all of the banks that got taxpayer capital through the $700 billion Troubled Asset Relief Program were as solid as the Treasury Department represented.

Michigan, which is home to a large automobile sector, has been battered over the past year by rising unemployment and a depressed housing market. Citizens Republic lost $393.1 million last year, and also reported a $45.1 million loss for the first quarter of this year.

Citizens Republic said the options under consideration include asking the Treasury Department to buy an additional $190 million in preferred stock through TARP's Capital Purchase Program, and to provide $100 million through another initiative called the Capital Assistance Program.

Citizens Republic said it could use some of its Capital Assistance Program funds to buy back a portion of the preferred stock it sold the government when it received its first round of bailout funding

The bank is also considering another stock sale, offering debt holders the opportunity to convert debentures into common stock, and exchanging shares of common stock for outstanding trust preferred securities.

When the TARP program was first announced, officials said that only healthy banks could receive assistance, but Treasury refused to publish the criteria it used to make that determination.

Recent weeks have seen increased signs of bailed-out banks continuing to struggle with their balance sheets. BailoutSleuth previously reported that at least three banks have suspended dividend payments to the government in order to conserve cash.
June 25, 2009 1:10 PM

Hartford Closes on Deal to Buy Federal Trust, Get TARP Funding

  by AVI KLEIN

The Hartford Financial Services Corp. completed its long-delayed purchase of Federal Trust Corp., calling it the "last significant step" in its bid to receive $3.4 billion in bailout funding.

The acquisition, for $10 million in cash, follows the Treasury Department's announcement earlier this month that Hartford and five other life insurance companies had been approved for the $700 billion Troubled Asset Relief Program.

When the program was first announced last year, 12 life insurers -- many of which had been battered by improvident investments in housing derivatives -- rushed to sign up for government funding. Under the terms of the program, however, insurers have to own a bank, sparking those that didn't already have one to try and buy one.

Hartford quickly struck a deal with Florida-based Federal Trust. But the bank was suffering significant capital losses and the subject of intense regulatory scrutiny. As BailoutSleuth reported, the deal was delayed at least twice as the Office of Thrift Supervision extended deadlines for Federal Trust to raise capital levels. At one point, Hartford lent Federal Trust $20 million to keep it afloat.

Such delays affected other banks as well, and in the end Hartford and Lincoln National Corp. were the only insurers among the six approved for TARP funds that actually accepted the money. Ameriprise Financial Group, Allstate Corp., Prudential Financial Inc., and Principal Financial Group all decided against participating.
June 24, 2009 5:22 PM

Two TARP Banks Amend Merger Terms

  by SONYA HUBBARD  for Footnoted.org Logo

It's been nearly three months since two Virginia-based banks agreed to merge:  Union Bankshares Corporation and First Market Bank.

The merger is still on, but in the past few days the parties have amended some of the important terms.  (Those wishing to see the documents filed with the Securities and Exchange Commission can find them here, here, here, and here).

Under the terms of the March 30 merger agreement, First Market Bank was intended to be a separate subsidiary of Union Bankshares. That is no longer the case.

Now the merger is expected to occur in the fourth quarter of 2009. First Market is to be rolled into Union Bank & Trust --  Union Bankshares' biggest unit -- in the first quarter of 2010.

After the merger, the combined institution will have 97 branches throughout Virginia, with more than $4.0 billion in assets.  The holding company will be based in Richmond.

According to this press release about the revised merger terms, Union Bankshares will "change its name to 'Union First Market Bankshares Corporation' or another name agreed upon by the parties."  The parties may also rename the "continuing bank" sometime in the future.  

The press release claims that the merger of the banks will result "...in a more diversified and more competitive enterprise that is better positioned to meet the needs of the Virginia communities they currently serve."

Union Bankshares got $59 million in government aid on Dec. 19 through the $700 billion Troubled Asset Relief Program. It issued the Treasury Department preferred stock and warrants in return.

First Market Bank took $33.9 million on February 6 under the same TARP initiative, known as the Capital Purchase Program. It also preferred stock and warrants in exchange for the cash.

June 24, 2009 1:36 PM

Bailed-Out Sacramento Bank Favors Insiders for Loans

  by AVI KLEIN

A California bank that received $3.9 million in bailout funding has directed most of its recent loan activity to its own directors and their close associates.

Since it opened more than three years ago, West Sacramento-based Community Business Bank has lent approximately one-third of its loan portfolio of $100 million to company insiders, their relatives and their business partners, the Sacramento Bee reported.

Much of the insider lending activity was steered towards housing projects, a risky endeavor in northern California's overheated and then battered real estate market. In one 2007 case, a bank director was lent $6 million for a development project in the nearby city of Vacaville.  Construction has yet to begin, the Bee reported.

According to the Federal Deposit Insurance Corp., Community Business' proportion of loans to bank directors is larger than 90 percent of banks of similar size.

Bankrate.com, an online banking information resource, said in a December 2008 evaluation that the bank "exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, very questionable asset quality, strong capitalization and lower than normal liquidity."

The Sacramento Bee report is the latest in the past week to cast doubt on the Treasury Department's claim that the $700 billion Troubled Asset Relief Program was carefully designed to improve liquidity by funneling money to healthy banks.

BailoutSleuth reported yesterday that three banks had suspended dividend payments to the Treasury partly in an effort to improve straggling capital ratios.
June 23, 2009 2:10 PM

First Midwest Bancorp Inc. Treads Comp Rules Carefully

  by SONYA HUBBARD  for Footnoted.org Logo

Just a couple of weeks before the Treasury Department issued its revised rules on compensation for companies getting money through the Troubled Asset Relief Program, First Midwest Bancorp, Inc. filed this document disclosing that its top five executives would be given more compensation in the form of restricted stock awards. 

The company, which operates First Midwest Bank in Itasca, Ill., did not disclose how many shares each executive would be granted. But it filed a registration statement with the SEC adding 1 million shares to the stock authorized under its existing long-term incentive plan.

First Midwest Bancorp recognized that its participation in the TARP Capital Purchase Program subjected it to limitations on executive compensation for as long as it still had loan proceeds outstanding. That is why the bank's filing included two caveats on the grants:

"In the event the award does not comply with EESA Requirements, the non-conforming provisions will be modified to comply with the EESA Requirements.

The shares do not fully vest until the Company redeems the Preferred Shares and the executive completes a ten day service period following such redemption, unless earlier full vesting is permitted under EESA Requirements."

A summary of of the Interim Final Rule on TARP Standards for Compensation and Corporate Governance is available here (or - if you've got a bit more time on your hands - you can read the 123-page version here).

The bank's restricted stock grant seems consistent with the TARP compensation rules (both those in effect prior to June 10 and those just published).  As the Treasury's new rules state, the intent is to align incentives for executives with those of shareholders and taxpayers, to ensure that executives are subject to a 'clawback' of some compensation if positive results prove illusory.

For those keeping track of participants in the Capital Purchase Program, First Midwest Bancorp got $193 million from the Treasury on Dec. 5 in exchange for 193,0000 shares of preferred stock and a ten-year warrant.

First Midwest describes itself as "one of the Chicago metropolitan area's largest independent bank holding companies" with approximately 100 offices in 62 communities.

In related news, in late May, the bank's board declared a quarterly common stock dividend of $0.01 per share, to be paid on July 14 to shareholders of record as of June 26.  That is the same amount the bank paid after the first quarter of 2009.  However, both amounts are significantly lower than the dividends that the bank historically has paid each quarter during the past five years, which ranged from $0.22 per share to $0.31 per share.
June 23, 2009 12:44 PM

Three Banks Suspend TARP Dividend Payments

  by AVI KLEIN

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.
June 22, 2009 8:15 AM

States want to join AIG bonus probe

  by AVI KLEIN

A group of state attorneys general has asked to join a federal investigation into bonus payments at American International Group Inc., asserting that the company had used "half truths" in testimony before Congress.

 

In a letter to Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, the 11 attorneys general eased away from plans announced in March to conduct their own review.

 

"I would like to meet with you," wrote New Jersey Attorney General Anne Milgram,  "to discuss ways state regulators can assist in assuring that its investors interests are addressed, while avoiding regulatory duplication that might drain federal taxpayer dollars."

 

The letter's other signatories included the attorneys general of Illinois, Texas, Ohio and Michigan. Joseph R. Biden III, the attorney general of Delaware and the son of Vice President Joe Biden, also endorsed the idea of a shared investigation.

 

Milgram led the creation of the coalition of attorneys general after AIG announced plans to pay out $165 million in bonuses, much of it to employees responsible for the creation of the housing-related derivatives widely blamed for the ongoing economic slowdown.

 

AIG received $180 billion in bailout funds, and the decision to pay bonuses was widely condemned, spurring many employees to give them back.

 

In her letter to Barofsky, Milgram charged that AIG executives had not been truthful in testimony before Congress.

 

"In addition to concerns about the propriety of its bonus and retention payments to employees in the Financial Products Unit, we question the candor of some of AIG's responses about the proportion of its TARP payments allocated to its compensation program more generally," she wrote.

 

According to Milgram, AIG initially told Congress that it paid $120 million in company-wide bonuses, but later raised the figure to $454 million. Such discrepancies, she wrote, "raise serious questions about the completeness of AIG's characterization of its financial position."

June 20, 2009 7:39 AM

Three more banks go under

  by CHRIS CAREY

Regulators closed three more banks, bringing the total for the first half of the year to 40.

 

The total for all of 2008 was 25.

 

The North Carolina Commissioner of Banks shut down Cooperative Bank, in Wilmington, N.C., and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC struck a deal with First Bank, of Troy, N.C., to take over the failed institution's 24 branch offices and $774 million in deposits.

 

First Bank also agreed to buy $942 million of Cooperative Bank's $970 million in assets. Roughly $852 million of those assets are subject to a loss-sharing arrangement with the FDIC, intended to maximize returns on the assets by keeping them in the private sector.

 

The Georgia Department of Banking and Finance seized Southern Community Bank, in Fayetteville, Ga. The FDIC, as receiver, arranged for United Community Bank, of Blairsville, Ga., to buy Southern Community's its five branches and $307 million in deposits. United Community paid a 1 percent premium for the deposits.

 

It also agreed to buy $364 million of the failed bank's $377 million in assets, with $253 million being subject to a loss-sharing deal.

 

The Office of the Comptroller of the Currency shut down the First National Bank of Anthony, in Anthony, Kan., and appointed the FDIC as receiver. It sold the failed bank's six branches and $142.5 million in deposits to SNB Bank of Kansas, in South Hutchinson, Kan.

 

SNB Bank of Kansas paid a 0.5 percent premium for the deposits. It also bought nearly all of the bank's $156.9 million in assets, with $130.5 million of that amount subject to loss sharing.

 

The FDIC estimated that the three latest bank failures would cost its insurance fund around $353.2 million.

June 19, 2009 5:43 PM

An Unlikely Discussion on Common Sense and Roses

  by SONYA HUBBARD  for Footnoted.org Logo

Executives, politicians, economists, investors, and the average Joe and Jane on the street may never look at Troubled Asset Relief Program investments in exactly the same way.

Were banks "patriotic" to take the government aid?  Should the loans crimp executives' compensation and their style of entertaining, assuming they repay the money with interest to the Treasury?  (The example of Northern Trust Corp., which took a $1.6 billion in aid, comes to mind; the company was excoriated after it hosted lavish golf tournaments and parties -- even hiring Sheryl Crow for one event.) Has TARP become the 21st Century equiveltn of a "scarlet letter,'' as Bank of Granite corp.'s Scott Anderson opined?

Well, here's another point of view to add to the dialogue, and it comes from John A. Celentano, Jr. and Walter Celuch, executives at New Jersey-based Clifton Savings Bancorp, Inc., the holding company for Clifton Savings Bank.

On June 12, 2009, Clifton filed its annual report with the Securities and Exchange Commission, and it made some very direct statements about competitors that took government aid.  To be clear (although that will be obvious in a moment), Clifton did not sell shares to the government through TARP's Capital Purchase Program.

Clifton prides itself on its "common sense" and reports a number of laudable results:  an increase in net income of almost 117 percent, a steady price for its stock, the payment of 20 consecutive quarterly dividends, and just one foreclosure - "on a small, very well-secured modest home" - out of 2,373 loans made.  [The full letter - Exhibit 13 to the annual report - is available here.]

Clifton's executives note that:  "Unlike our national and international competitors, we don't have thousands of employees or rely on arcane computer models. Instead, we have just ten offices and a staff of slightly more than 100. And yet, while most of these major banks foundered, we made money during the past fiscal year. How? By exercising good risk management, doing business with creditworthy customers and using common sense."

Then the executives turn their sights on competitors that did take TARP funds:

"Competitors who risked their depositors' monies by accepting troubled assets are now rationalizing their poor financials by blaming them on the economy, the global financial crisis, tax rates and the national financial slump.  They are forced to accept government bailout money to dress up those troubled assets on their balance sheets. Rather than admit that they accepted bailout money under the 'Troubled Asset Relief Program,' they call it a Capital Purchase Program.  Our common sense tells us that a rose by any other name is still a rose and their troubled assets are still troubled.

Our profitable loans remain profitable. That's why we didn't need the government's bailout money and said 'No thanks' to the offer."

Harsh?  Yes.  But it's pretty hard to argue with Clifton's financial performance.  It's too bad that their brand of "common sense" isn't a bit more... well, common.

June 19, 2009 2:31 PM

Bailed-Out Bank Executives Continue Use of Corporate Jets

  by AVI KLEIN

Executives for banks receiving bailout money have continued to fly corporate jets to exotic vacation destinations, raising questions about whether the firms have been responsive to public concerns about the proper use of federal funding.

A detailed analysis of flight records by the Wall Street Journal found numerous examples of such flights, sometimes in the immediate wake of promises to curtail such activity.

In one instance, Sanford Weill, the former chief executive of Citigroup Inc., took a corporate jet to a small airport in New York's Adirondack region, where he owns a vacation home. Just two days earlier, facing criticism from President Barack Obama, who noted that the government had spent billions of dollars bailing out the financial giant, the firm had contritely cancelled an order for a new corporate jet.

Experts say the trip to the Adirondacks cost the company approximately $33,500. The day he returned, Mr. Weill announced he was voluntarily abandoning his contractual rights to use corporate jets at his leisure, the Journal reported.

The issue of the use of corporate jets and other perks by the nation's executives has been red hot since the bailout began. A number of executives were seen as making serious public relations stumbles when they flew to Washington on their own jets to plead for aid from the Treasury department. Afterward, a few auto executives made a show of driving from Michigan for future meetings.  

BailoutSleuth's review of proxy statement filed by the big banks that got TARP money found that many require top executives to use corporate aircraft on business trips for security purposes. Some of those executives also are allowed to use the aircraft for personal trips, with the cost either reimbursed to the company or reported as a perquisite in annual compensation packages.

Many executives say that the use of corporate jets is actually economical because it allows them to focus on managing their businesses rather than suffer the vagaries of commercial travel. The use of the jets to ferry executives to vacation spots, however, casts doubt on the claim that their use always has a legitimate cost-saving purpose.

Bank of America executives also used corporate jets for vacation purposes despite receiving $45 billion in funding under the Troubled Asset Relied Program, the Journal reported. Last year, the firm's Gulfstream V jet was tracked numerous times as it flew from the company's home base in Charlotte, N.C. to Hilton Head, S. C. Kenneth Lewis, Bank of America's chief executive, has a vacation home near Hilton Head.

Other bailed-out banks that permitted the use of corporate aircraft for vacation use include Morgan Stanley, PNC Financial Services Group Inc., and Regions Financial Corp.
June 18, 2009 6:54 PM

More TARP money may soon be repaid

  by SONYA HUBBARD  for Footnoted.org Logo

If all goes according to plan, more money borrowed under the Troubled Asset Relief Program might be flowing back to the Treasury Department in the near future. 

In the first case, the repayment depends on the company raising money through public stock offerings, as well as securing the government's approval to repay the monies borrowed, plus interest.

First Community Bancshares, Inc. (FCBC), a $2.2 billion financial holding company, is the parent company of First Community Bank, N.A. 

Headquartered in Virginia, First Community has 71 branches there and in West Virginia, North Carolina, South Carolina, and Tennessee.

The company is currently selling stock in the hope of raising approximately $50 million of new capital.  According to the press release earlier this month, the bank plans to use the money "for general corporate purposes which may include, among other uses, support for organic and opportunistic acquisition-based growth, as well as the repurchase of the preferred stock issued to the U.S. Department of the Treasury... as part of the TARP Capital Purchase Program."

First Community got $41.5 million in aid from the Treasury on Nov. 21.

Sandler O'Neill + Partners, L.P. and Raymond James & Associates, the co-managers for the offering, will have a 30-day option to purchase up to 15 percent more common stock from First Community if the offering is oversold.

The second situation is slightly different; the bank in question hasn't committed to repaying the CPP loan early, but says it might do so if the economy improves.

Park National Corp. (PRK), which operates its national subsidiary, Park National Bank, is also selling stock with the goal of raising up to $70 million.

According to a recent article in the Columbus Dispatch, Park is trying to raise capital through the stock sale "...as a cushion in case the economy worsens."  It continues:

"We don't need to raise the capital. We're in a very strong capital position, and anything we can raise will make us even stronger," said Brady Burt, Park's chief accounting officer.

The money is an insurance policy in case the economy takes a turn for the worse, he said. If it doesn't, it could be used to repay some or all of the $100 million the Newark-based bank received from the U.S. Treasury Department's Troubled Asset Relief Program.

Park National Corp. got $100 million in taxpayer capital through the stock-purchase program on Dec. 23.

June 18, 2009 11:27 AM

Major Banks Complete TARP Redemptions

  by AVI KLEIN

Ten major financial institutions returned a total of $68 billion in bailout funding they received under the Troubled Asset Relief Program, bringing the total amount returned to the government to $70 billion.

The latest group was led by JPMorgan Chase & Co., which repaid $25 million to the Treasury Department, and Morgan Stanley, which returned $10 billion. The other banks were Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., American Express Co., BB&T Corp., Bank of New York Mellon Corp., Northern Trust Corp. and State Street Corp.

In addition to redeeming the shares they sold the government in exchange for financial assistance, the banks paid $2 billion in accrued dividends. The banks also gave the Treasury stock warrants, but the procedures for evaluating their value remain under review.

The redemptions, which were approved last week by the Treasury, mark the most forceful move so far by a banking industry eager to escape what it perceives as an oppressive regulatory environment. Restrictions on executive pay and dividends payments have topped the list of industry complaints.

Despite these criticisms, however, Treasury has no plans to ease up on the $700 billion bailout program. The department has said that it intends to funnel all returned bailout money to assist other, mainly smaller, banks in need of capital.

In one of its most recent distributions, Treasury announced Tuesday that it would lend $15 million to Wisconsin-based River Valley Bank. The bank said the aid would permit it to make up to $150 million in loans to the local community.
June 17, 2009 2:47 PM

Treasury boosts funding for mortgage modifications

  by AVI KLEIN

The Treasury Department added $3.1 billion to a program intended to prevent troubled homeowners from going into foreclosure.

The decision, which brings the cost of the Making Home Affordable program up to $18.3 billion, comes as home losses continue to spiral and the credit market shows few signs of hospitality to refinancers.

Under the program, the federal government provides incentives to participating institutions to negotiate lower monthly payments. If that fails to provide enough relief, lenders and loan servicers are encouraged to help homeowners through a so-called "short sale," selling their property for less than what they owe. 

Because lenders have to approve such a transaction, it is often a time-consuming and uncertain approach to avoiding foreclosure. The result is typically better for consumers, however, because a foreclosure will devastate a homeowner's credit score and hurt his or her ability to get a mortgage in the future.

The government has committed $50 billion out of the $700 billion bailout package to mortgage relief. According to Treasury, 50,000 homeowners are currently enrolled in the program.

Sixteen mortgage service companies are participating. The latest addition, according to a Treasury announcement last week, is Texas-based Residential Credit Solutions Inc. The company will receive up to $19.4 million in incentives.

Most of the additional funding, however, will go to Countrywide Home Loans Servicing, a subsidiary of Bank of America Corp. Countrywide received an increased payment of $3.3 billion, bringing its total to $5.2 billion.

A few companies had their incentive amounts reduced.

June 16, 2009 2:11 PM

Pinnacle Financial Partners Goes into Fundraising Mode

  by SONYA HUBBARD  for Footnoted.org Logo

Add Nashville-based Pinnacle Financial Partners, Inc. (PNPF) to the list of companies that is keeping firms like Raymond James & Associates busy.  Last Thursday, Pinnacle signed an underwriting agreement (documented in this filing with the Securities and Exchange Commission) covering the planned sale of 7.7 million shares of common stock. It said it expected to net $95.1 million in new capital from the sale.

However, Raymond James exercised an option for an additional 1.16 million shares to cover overallotments, lifting the net proceeds to $109.1 million.

Pinnacle is the second-largest bank holding company based in Tennessee. It has 31 offices in eight Middle Tennessee counties and two offices in Knoxville.  

Last December, Pinnacle got $95 million in taxpayer capital through the Treasury Department's Troubled Asset Relief Program (TARP). It issued the government 95,000 shares of preferred stock and warrants to buy 534,910 shares of common stock.  

Pinnacle said in a press release last week that it would use the proceeds of the offering for "general corporate purposes, including additional capital for Pinnacle National Bank and possible repurchase from the U.S. Treasury of the $95 million of Series A preferred stock, and associated warrants, issued in connection with the Treasury's TARP Capital Purchase Program."  

Pinnacle says on its Web site that it was the only publicly traded bank in the Nashville and Knoxville markets to post a stock gain in 2008. 

"Over the last eight years, from Dec. 31, 2000, to Dec. 31, 2008, the average increase in the price of Pinnacle shares was 33.2 percent per year,'' the company said. "Pinnacle shareholders have enjoyed the second-highest total return of all publicly traded banks in the United States over the past five years, according to research firm SNL Financial LC."  

We'll keep an eye open and let you know how Pinnacle fares from here.

June 16, 2009 10:58 AM

Treasury Report: Lending Activity Continues Decline

  by AVI KLEIN

Lending activity at the top 21 banks receiving bailout money declined in April, making the month the fifth out of the last six to be marked by a lending downturn.

The Treasury Department's monthly report on lending activity found that overall loan balances declined by 1 percent among the leading banks that got aid under the Troubled Asset Relief Program.

In even more worrying signs, loan originations declined 7 percent across the board, while 9 percent of mortgages are now at least 30 days delinquent.

The results were mixed among lending classes. Home equity lines saw a 9 percent decrease in originations, the Treasury reported. Student and auto loans saw an increase in originations, as did renewals of existing commercial and industrial accounts. New commercial and industrial commitments, however, declined 29 percent.

Consumer credit card balanced remained flat, suggesting that "many customers focus on paying down debt," Treasury said.

Lending activity among the 21 banks also varied. Six experienced increases in total originations from March to April, while 15 experienced decreases. Only two banks reported increases in total outstanding balances, while 19 had decreases.

Of the 21 banks, Bank of America Corp. booked the largest dollar value of originations, with $68.1 billion in new lending. Wells Fargo & Co. was second with $65.1 billion.

Overall, the Treasury report pointed to an economy moving slowly toward recovery. In addition to banking factors, the department pointed to stabilizing joblessness numbers and the retreat of short-term credit spreads as reasons to be optimistic.
June 15, 2009 11:16 AM

Lincoln National Accepts Bailout Funding

  by AVI KLEIN

Another life insurance firm has decided to accept bailout funding from the federal government.

Lincoln National Corp. announced that it will sell $950 million dollars in stock to the Treasury Department under the Troubled Asset Relied Program. In an additional move  to raise capital, it will also sell $600 million in common stock and $500 million in senior debt, and will sell a United Kingdom subsidiary for an additional $319 million.

Lincoln, like many other life insurers, made large investments in derivative products tied to the housing market. After their value collapsed and congress approved the $700 billion bailout package, some insurance companies bought banks in order to qualify. Lincoln purchased Indiana-based Newton County Loan and Savings.

After a long delay, the Treasury Department last month approved Lincoln for $2.5 billion in bailout funding. The firm said it would decide in the next few weeks whether to take the remaining $1.55 billion in aid.

Six other life insurers received approval to join the bailout program, but only Lincoln and The Hartford Financial Services Corp. have followed through. Ameriprise Financial Group, Allstate Corp., Prudential Financial Inc., and Principal Financial Group have all decided against participating.

Like many other financial services firms, the life insurers that declined bailout assistance have been deterred by restrictions imposed by Congress and Treasury on executive pay, the distribution of dividends, and other similar matters.

In an investor conference last month, Dennis Glass, Lincoln's chief executive, said the TARP option was part of a mix of options to raise capital and that the company could "handle the restrictions," Bloomberg News reported.
June 12, 2009 1:58 PM

Hartford Accepts TARP Funds; Principal Financial Declines

  by AVI KLEIN

One life insurance company has decided to accept bailout funding, while another has decided to reject it.

Hartford Financial Services Corp. said it would take the $3.4 billion in capital it was authorized to receive through the Troubled Asset Relief Program. The decision was coupled with an announcement that the company would attempt to raise $750 million in a common stock offering.

"Today's decisions will further bolster our capital base and provide additional financial flexibility," said Lizabeth Zlatkus, The Hartford's chief financial officer, in a statement. "The discretionary equity issuance will allow us to be opportunistic in raising capital while reducing our financial leverage."

Principal Financial Group Inc. announced that it would not accept bailout money, having recently raised $1.9 billion through the sale of stocks and bonds.

The Hartford, like a number of other life insurance companies, bet heavily on derivatives instruments tied to the housing market and was burned when their value collapsed.

After Congress approved the $700 billion TARP plan, some bought savings and loans in order to qualify for the bailout program. The Hartford arranged to buy struggling Florida-based Federal Trust Corp.

Not all insurers, however, have been as eager as The Hartford to participate in TARP. Larry Zimpleman, Principal chief executive officer, pointed to improvements in the credit market as the main reason his company was declining government aid.

 "We're seeing the capital markets in the U.S. returning to more normal functioning," Zimpleman said.
June 11, 2009 12:42 PM

  by AVI KLEIN

The Treasury Department issued long-awaited rules on executive compensation for financial institutions and automobile companies involved in the bailout plan.

Under the new regulations, compensation rates at seven of the largest firms to get funding through the Troubled Asset Relief Program will be reviewed by a new special master appointed by the Treasury. The objective is to "develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives," said Treasury Secretary Timothy F. Geithner in a statement.

The seven firms subject to the rule include American International Group Inc., Citigroup Inc., Bank of America Corp., General Motors Corp., Chrysler Group LLC, GMAC LLC and Chrysler Financial LLC.

Kenneth R. Feinberg, who was appointed to oversee executive pay at the companies,  will have the authority to decide the appropriate compensation for each firm's 25 highest-paid employees, including their five most senior executives. Mr. Feinberg is perhaps best known for his role in managing claims from the victims of the September 11 terrorist attacks.

In addition to giving special attention to the pay packages for the top 25 employees, Feinberg also have the right to review compensation decisions for the next 75 highest-paid employees of each of the seven firms.

According to the Treasury, all compensation packages valued at less than $500,000 will be automatically approved. Contrary to expectations, however, the new rules do not apply to any of the other institutions receiving bailout assistance. Instead, Treasury has imposed a less onerous set of regulations requiring transparency and open deliberation of executive compensation matters.

For instance, in order to limit compensation practices that encourage excessive risk-taking, the new rules require companies receiving bailout money to publish a narrative explaining how its compensation procedures mitigate that problem. In addition, firms must hold an annual, non-binding shareholder vote on executive compensation decisions.

Other rules for all TARP recipients include mandatory disclosure of the hiring of compensation consultants, and of the distribution of any perquisites to employees worth more than $25,000.
June 11, 2009 12:38 AM

Kitsap Bank Declines TARP Funding

  by AVI KLEIN

Another bank has changed its mind and declined to participate in the Troubled Asset Relief Program.

Washington State-based Kitsap Bank said that, despite approval by the Treasury Department for $21 million in taxpayer capital, it would not accept the money. The decision comes a month after the bank was selected by federal regulators to assume the deposits and operations of failed Washington-based Westsound Bank.

Kitsap Bank said that even after taking on Westsound's operations, it is well-capitalized and does not need federal assistance.

"In the final analysis, we determined that TARP funding was not necessary, and just not a fit for us," said James Carmichael, Kitsap Bank's chief executive, in a statement. "Kitsap Bank is gratified to be recognized for our safety and soundness, and that the US Treasury remains confident in our long-term viability."

A number of banks already participating in TARP are trying to exit the program as quickly as possible. Others that have not yet taken government money are backtracking by declining the funds or withdrawing their pending applications.

Most have cited concerns about public relations and restrictions on executive pay and other cash-related matters as reasons not to participate.
June 9, 2009 9:51 PM

Treasury completes three more bank investments

  by CHRIS CAREY

The Treasury Department has completed investments in three more banks, totaling $40.3 million.

 

First Trust Corp., of New Orleans, La., sold $18.0 million in subordinated debentures to the government. The closely held company owns First Bank and Trust, which has branches in Louisiana and Mississippi.

 

OneFinancial Corp., of Little Rock, Ark., got $17.3 million in taxpayer capital. It is the owner of One Bank & Trust NA, also known as Onebanc. The privately held company also issued subordinated debentures to the government.

 

Covenant Financial Corp., of Clarksdale, Miss., got $5 million. It sold preferred stock that pays dividends at a rate of 5 percent annually for the first five years and 9 percent annually therafter.

 

The Treasury Department said in its latest transaction report that it had invested $199.4 billion in bank securities under the capital purchase section of the $700 billion Troubled Asset Relief Program.

 

It said $1.87 billion of that capital had been repaid, leaving the current investment at just under $197.6 billion.

June 9, 2009 12:22 PM

Ten Major Banks Approved for TARP Repayment

  by AVI KLEIN

Ten of the largest financial institutions participating in the bailout program have been approved to return the money they received last year as part of the federal effort to shore up the banking sector.

Treasury Secretary Timothy F. Geithner said in a statement the ten banks had "met the requirements for repayment" and that the Treasury Department could expect to receive $68 billion in redemption payments and accrued dividends if the financial institutions follow through.

Geithner did not name the approved banks, but they have been widely reported as JPMorgan Chase & Co., American Express Co., Goldman Sachs, Morgan Stanley, Northern Trust Corp., BB&T Corp., State Street Corp., US Bancorp, Bank of New York Mellon Corp., and Capital One Financial Corp. All were subject to the recent round of stress tests.

In order to qualify to redeem their shares, the largest of the bailed-out banks must be able to prove that they would be adequately capitalized without government assistance, would continue normal lending operations, and would maintain their obligations with subsidiaries and counterparties.

A number of banks, including JPMorgan Chase, American Express, Morgan Stanley and KeyCorp have sold stock in recent weeks in order to meet the Treasury requirements. Banks are eager to leave the program due to concerns about regulatory restrictions on executive pay and dividend payments, among other issues.
June 9, 2009 11:09 AM

Oversight Panel Says Ongoing Stress Tests Needed

  by AVI KLEIN

In light of worsening economic conditions, the Federal Reserve Board should continue to conduct stress tests of the nation's largest bailed-out banks, a congressional panel said.

The Congressional Oversight Panel, while complimentary of the stress tests conducted earlier this year on 19 major banks, said that an unexpected increase in unemployment meant that the tests were already outdated.

The original stress tests projected the health of those banks under various levels of future economic distress. In the worst-case scenario, the tests assumed a 2009 unemployment rate of 8.9 percent. In May, however, the yearly average reached 8.5 percent, and if current trends continue, it will exceed previous assumptions.

Nine of the banks that underwent stress tests were found to hold sufficient capital. Ten of the banks were order to raise additional capital, and many have moved aggressively to do so by initiating stock offerings.

To better understand the stress tests, the panel hired two financial risk management experts to review the Treasury's methodology.

The researchers, Professor Eric Talley and Professor Johan Walden, both of the University of California at Berkeley, found that "the Federal Reserve used a conservative and reasonable model to test the banks, and that the model provides helpful information about the possible risks" the banks face moving forward.

Professors Taley and Walden noted, however, that it was not possible to replicate the stress tests. The Federal Reserve has not disclosed whether it made different assumptions for different banks, and there is no way to check the reliability of the self-reported data that the banks provided to the government in advance of the tests.

"Without this information, it is not possible for anyone to replicate the tests to determine how robust they are or to vary the assumptions to see whether different projections might yield very different results," the report says. "It may fail to capture substantial risks further out on the horizon."

Moving forward, the oversight panel suggested that the Federal Reserve continue to conduct stress tests on a regular basis. It also said that banks should conduct their own stress tests and provide the results to regulators, and that regulators should have the ability to order stress tests whenever "they believe that doing so would help to promote a healthy banking system."  
June 8, 2009 11:21 AM

In a Change, Bank Returns Only a Portion of Bailout Funds

  by AVI KLEIN

A New Jersey bank has been approved to repay a portion of the bailout money it received under the Troubled Asset Relief Program.

Valley National Bancorp said it would redeem $75.2 million of the $300 million of common stock it gave the Treasury Department last year in exchange for emergency funding. It will also pay accrued dividends.

Banks both large and small have beaten a path to the Treasury's door in recent months in an attempt to escape what is perceived by many in the industry as a harsh regulatory environment. Concerns about restrictions on executive pay and dividend distribution top the list of complaints.

Some banks have also expressed concerns about the public relations aspects of accepting government money. While some executives avoided the program out of fear of being seen as insufficiently capitalized, others jumped into the program once it was announced that only strong banks could receive bailout money to begin with.

Most executives in the latter group have since changed their minds, believing that the public relations drawbacks far outweigh the advantage of inexpensive capital. At the same time, however, an uncertain economy has made some wary of giving it up to the Treasury. Valley National's incremental approach may reflect a balancing between those two motivations.

"We felt that by adding capital to Valley, we could meet the challenges of those uncertainties from a position of strength at a relatively low cost," said Gerald H. Lipkin, Valley National's chief executive, in a statement.

"We remain well aware of the risks that remain in this severe economic downtown, and at this time, have not requested permission from our regulators or the U.S. Treasury to repurchase the remaining preferred shares," Lipkin said.
June 6, 2009 7:38 AM

Regulators seize Illinois bank

  by CHRIS CAREY

Regulators took over the Bank of Lincolnwood in Illinois, selling its deposits and most of its assets to Republic Bank.

 

The Illinois Department of Financial and Professional Regulation shut down the bank on Friday and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC arranged for Republic to assume the failed bank's $202 million in deposits.

 

Republic, based in Oak Brook, Ill., agreed to buy $162 million of Bank of Lincolnwood's $214 million in assets. 

 

The FDIC said in its announcement on the closing that it would hold the remaining assets for later sale or disposition.

 

Bank of Lincolnwood was the 37th bank to fail this year. Six of those were in Illinois. The FDIC estimated that the bank's collapse would cost its insurance fund around $83 million.

 

Republic Bank also took over the deposits of the failed National Bank of Commerce in Berkeley, Ill. It was seized by regulators in January.

June 5, 2009 4:01 PM

Treasury To Appoint Pay Czar to Handle TARP Compensation Issues

  by AVI KLEIN

The Treasury Department is expected to hire a "pay czar" to oversee executive salary restriction issues associated with the bailout program.

Kenneth Feinberg, known for overseeing the compensation fund for victims of the September 11, 2001 terrorist attacks, will be named Special Master for Compensation, the Wall Street Journal reported. The official appointment is expected next week, when Treasury releases new guidelines for executive pay.

The question of how much bailed-out institutions should pay those in top leadership positions has bedeviled almost everyone involved in the process. Financial institutions and automobile firms have said that they need to pay large salaries to attract the best executives.

But critics of the bailout process have questioned why taxpayers should contribute to hefty salaries for financial executives, many of whom they blame for creating the economic crisis.

The matter came to a head in the case of the American International Group Inc., which received $170 billion in bailout funding and then attempted to pay $165 million in bonus payments to employees working in the derivatives unit that caused the company to nearly go under. Under extreme public pressure, as well as threats from Congress and President Barack Obama, many of the employees decided not to accept the bonuses.

Earlier this year, the Treasury Department and Congress both issued rules for banks receiving bailout money. Those rules include limits on certain executive salaries, a ban on golden parachutes, requirements that additional pay be given in the form of restricted stock that cannot be redeemed until bailout money is returned, and a bar on bonuses for top level executives that exceed a third of their total compensation, the Wall Street Journal reported.

Concern about these restrictions has been a driving force behind an accelerating movement among financial institutions to return bailout money as quickly as possible. This week alone, at least five have sold stock in anticipation of redeeming the shares they sold the government.

Critics, however, have noted that some financial institutions have attempted to work around the restrictions rather than escape the bailout program altogether. In a possible attempt to avoid the ban on golden parachutes, Wisconsin-based Associated Banc Corp gave a departing executive $1.65 million in exchange for what the bank described as a non-compete agreement.

In another case, Virginia-based Hampton Roads Bancshares Inc. paid a former executive $1.3 million for "consulting duties."

The forthcoming Treasury rules are expected to clarify these issues and resolve confusion between the department's rules and those issued by Congress.
June 5, 2009 10:25 AM

Fifth Third Takes First Step to Redeem TARP Shares

  by AVI KLEIN

Another of the nation's largest banks sold stock in anticipation of leaving the $700 billion bailout program.

Ohio-based Fifth Third Bancorp said it completed a $1 billion stock offering earlier this week, with some of the money earmarked to help redeem the $3.4 billion it received under the Troubled Asset Relief Program.

Fifth Third was among the 19 banks subject to the Federal Reserve Board's stress tests, which measured whether the companies could survive without federal assistance. In May, the Federal Reserve told Fifth Third, which had a large amount of potential commercial real estate losses, to raise more capital.

The money raised by the stock sale will reinforce the bank's capital ratios, in particular its level of Tier 1 equity -- the benchmark standard of financial health for a bank. By laying the groundwork for financial stability going forward, the bank hopes to be able to return its TARP funding as soon as possible.

"We are pleased to have demonstrated strong access to the public common equity markets through a successful completion of this transaction," said Kevin T. Kabat, chief executive of Fifth Third, in a statement.

"Upon completion of these transactions, the establishment of the Tier 1 common equity buffer, and meeting other requirements under the Capital Purchase Program, we intend to consult with our regulators to devise a plan and timeline for the repayment of the CPP preferred stock investment," Kabat said, referring the part of the TARP program focused on repairing the banking sector.

As one of the largest 19 banks in the bailout program, Fifth Third will be subject to criteria laid out earlier this week by the Federal Reserve. In addition to repaying the money plus accrued dividends, the bank will have to show it can raise money without government assistance, continue normal lending activities, maintain funding obligations to counterparties, and support subsidiary institutions.

Four other large financial institutions -- JPMorgan Chase & Co., Morgan Stanley, KeyCorp and American Express Co. -- announced similar plans this week. Banks have typically cited concerns about restrictions on executive pay and dividend distribution as reasons for wanting to leave the bailout program.
June 4, 2009 11:28 AM

Huntington Bancshares Sells Stock, Plans to Return TARP Funding

  by AVI KLEIN

Yet another bank is selling shares in order to withdraw from the federal bailout program.

Huntington Bancshares Inc. announced that it had begun a public offering of $300 million in common stock.  The bank described the move as part of an ongoing campaign to shore up its capitalization ratios in preparation for the return of the money it received under the Troubled Asset Relief Program.

"This additional capital action reflects the continued demand expressed for our common equity," said Stephen D. Steinour, Huntington's chief executive officer, in a statement.

"We believe we will have the capital necessary to weather an even more severe economic environment than we currently expect, while even better positioning us to eventually repay our $1.4 billion of TARP capital."

In order to withdraw from the bailout program, the Treasury has said that banks must prove they can raise sufficient capital on the open market. Huntington is the latest in a string of banks to sell stock in an attempt to both prove their strength and collect sufficient cash to buy back the shares it gave the government in exchange for federal funding.

Although Huntington did not give a reason for wanting to redeem its shares, banks have been increasingly unhappy about the regulatory environment surrounding the bailout initiative. Since it began, Congress has imposed a number of enhanced restrictions on executive pay and dividends that have made some bankers regret their participation and seek a way out.

Banks both small and large have been heading for the exits in recent days. Earlier this week, four larger banks -- JPMorgan Chase & Co., Morgan Stanley, KeyCorp and American Express Co. -- announced large stock sales in preparation for exiting TARP. 
June 3, 2009 2:32 PM

Four Major Financial Institutions Sell Stock In Preparation for TARP Exit

  by AVI KLEIN

Four large financial institutions are moving swiftly to repay bailout money by raising capital through a series of stock sales.

JPMorgan Chase & Co., Morgan Stanley, KeyCorp and American Express Co. all announced sales of common stock in order to meet capitalization requirements laid out in new Federal Reserve Board criteria for banks seeking to exit the Troubled Asset Relief Program.

Morgan Stanley said it raised $2.2 billion in stock sales on Tuesday, while JPMorgan managed to raise $5 billion. American Express sold $500 million in stock this week, and KeyCorp took home $1 billion in additional cash.

The decision to sell additional stock followed an announcement by the Federal Reserve Board that the 19 largest financial institutions in the bailout program would be subject to special rules for repaying the money they received.

According to the Federal Reserve, large banks seeking to redeem the shares they sold the government must prove they are adequately capitalized without bailout assistance and can borrow money on the open market without federal loan guarantees. The stock sales are intended to help companies meet these requirements.

In addition, the new criteria require the financial institutions to show they will continue normal lending activities, maintain funding obligations to counterparties, and support subsidiary institutions.

Since the bailout program began, an increasing number of financial institutions have sought to escape it, citing regulatory restrictions on executive pay and dividends, as well as broad public relations concerns about appearing to need government aid to survive.

None of the companies selling stock this week has been officially approved to redeem shares held by the government. But all passed the Federal Reserve Board's recent stress tests. Executives at JP Morgan and Morgan Stanley have said they expect to be out of the TARP program by the end of the month. The Treasury said it would rule on their applications next week.
June 2, 2009 6:21 PM

Treasury completes more bank investments

  by CHRIS CAREY

The Treasury Department said it completed investments in eight more banks, using $89.2 million from the Troubled Asset Relief Program.

 

Citizens Bancshares Co., of Chillicothe, Mo., sold $25 million in preferred stock to the government. The privately held parent company of Citizens Bank & Trust said it would use the additional capital to increase lending, particularly  in the northern suburbs of Kansas City and in Topeka, Kan.

 

Chambers Bancshares Inc., a family owned bank in Danville, Ark., got $19.8 million in taxpayer capital through the sale of subordinated debentures.

 

Community Bank Shares of Indiana Inc., based in New Albany, Ind., got $19.5 million. The company had a profit of $821,000 last year, down from $3.5 million in 2007. It attributed the decline primarily to a $5.6 million increase in its provision for loan losses.

 

Two Rivers Financial Group, of Burlington, Iowa, got $12.0 million in TARP money. The other banks that got taxpayer capital in the latest round of deals were:

 

CB Holding Corp. (Aledo, Ill.) -- $4.11 million

 

Fidelity Bancorp Inc. (Baton Rouge, La.) -- $3.94

 

Grand Mountain Bancshares Inc. (Grandby, Colo.) -- $3.08 million

 

American Premier Bancorp (Arcadia, Calif.) -- $1.80 million

June 2, 2009 2:46 PM

Federal Reserve Outlines TARP Withdrawal Policy

  by AVI KLEIN

The Federal Reserve Board announced the criteria it will use to decide whether the nation's largest financial institutions would be allowed to return bailout money.

The standards, which apply only to the 19 companies that underwent stress tests, lay out a way for them to redeem the shares they sold the government in exchange for billions of dollars under the Troubled Asset Relief Program.

Since the bailout began, a growing number of banks of all sizes have decided to withdraw from the program. Most have given as reasons concerns about an excessive regulatory environment - especially restrictions on executive pay and dividend payments -- and fear of being seen to the public as an unsafe institution.

From the beginning, however, the Treasury Department has said that it would only permit redemptions by banks that were sound enough to survive without government assistance or loan guarantees.

A number of smaller banks have already been approved, but the government delayed setting out procedures for the nineteen banks that make up the biggest bulk of the bailout program. Together, they received $228 billion out of the $700 billion allocated to rescue the banking sector.

In addition to being able to prove that they can make do without TARP funding, the new criteria require the financial institutions to show they will continue normal lending activities, maintain funding obligations to counterparties, and support subsidiary institutions.

Of the larger institutions, Bank of New York Mellon Corp., American Express Co., J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley have all formally applied to redeem their shares. A few others have stated their interest in withdrawing but are not known to have submitted a formal application.

In a statement, the Federal Reserve Board said it would rule on pending applications next week.
June 1, 2009 11:22 AM

Prudential Backs Out of TARP; Lincoln National Likely to Accept Funding

  by AVI KLEIN

Another insurance company has changed its mind and decided not to accept bailout funding, while a rival indicated that it would go ahead and take it.

In a brief statement, Prudential Financial Inc. said it had "conducted a thorough review" but would not be participating in the part of the Troubled Asset Relief Program dedicated to shoring up the financial system. In a separate statement, it said it would instead raise cash through a $1.25 billion stock offering.

Prudential, along with five other life insurance companies, received long-awaited approval to join the program in May based on its ownership of Prudential Bank & Trust. Some insurers that did not already own banks purchased them for the purpose of accessing government funding.

Since then, however, insurers have joined other financial institutions in their growing anxiety about heightened regulatory environment surrounding the $700 billion bailout program. So far, those that have accepted financial assistance have faced limitations on executive pay, dividend distributions, and other related matters.

Ameriprise Financial Inc. and Allstate Corp. have already announced that they would withdraw their applications. The other approved firms are The Hartford Financial Services Group Inc., Lincoln National Corp., and Principal Financial Group.

A Lincoln National executive indicated in the last few days that the firm would probably follow through and take the money. In an investor conference, Dennis Glass, Lincoln's chief executive, said the TARP option was part of a mix of options to raise capital and that the company could "handle the restrictions," Bloomberg News reported.
« May 2009 | Main Index | Archives | July 2009 »
Chris Carey, Editor
chris@bailoutsleuth.com

Tips & Story Ideas
tips@bailoutlseuth.com

Archives

from Bailoutsleuth.com

Search

About this Archive

This page is an archive of entries from June 2009 listed from newest to oldest.

May 2009 is the previous archive.

July 2009 is the next archive.

Find recent content on the main index or look in the archives to find all content.