February 2010 Archives

Regulators seized two Western banks on Friday, one in Washington and one in Nevada.

The Washington Department of Financial Institutions shut down Rainier Pacific Bank, of Renton, and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC arranged for Umpqua Bank, of Roseburg, Ore., to take over the failed bank's $446.2 million in deposits and $670.1 million of its assets.

Rainier Pacific's 14 branches will reopen as Umpqua branches.

The Nevada Department of Business and Industry closed Carson River Community Bank, in Carson City. Heritage Bank of Nevada, based in Reno, assumed Carson River's $50 million in deposits.

The failed bank's lone branch will become a Heritage Bank branch.

Rainier Pacific's demise had been many months in the making. It signed a cease-and-desist order with the FDIC last September that called for it to raise capital levels, hire and retain qualified management, increase board involvement in the bank's affairs and correct other deficiencies.

Its parent company, Rainier Pacific Financial Group Inc., earlier this month announced a loss of $26.5 million for the fourth quarter, pushing its loss for all of 2009 to $69.9 million.

In that press release, it said the outlook for the bank was bleak, given its weakened financial condition and the low likelihood that it would be able to raise additional capital.

Umpqua agreed to pay a 1.04 percent premium for Rainier Pacific's deposits. It entered into a loss-sharing deal with the FDIC on $578.1 million of the failed bank's assets. The FDIC retained $47.7 million in assets for later disposition.

Umpqua previously acquired the deposits and assets of two other closed banks - Evergreen Bank, in Seattle, and the Bank of Clark County, in Vancouver, Wash.

Heritage Bank of Nevada did not pay a premium for the deposits of Carson River Community Bank. It agreed to buy $38 million of the failed bank's $51.1 million in assets, with $28.5 million of that amount subject to a loss-sharing agreement.

The FDIC said the two closings would cost its deposit insurance fund an estimated $103.1 million.

Lawmakers questioned President Obama's proposed $30 billion small business lending fund during a hearing Friday, amid suggestions the program could be run better by the Small Business Administration than banks.

Small businesses, regulators and the administration are struggling to figure out how to increase lending that they say is crucial to creating jobs and getting the economy on sound footing. In 2009, loan balances declined by $587.3 billion, or 7.5 percent - the largest percentage drop since 1942, the FDIC reported.  

Small businesses blame banks for being overly cautious with their lending, while banks say onerous regulations are causing them to be more wary with capital. Despite a recent memo from regulators saying banks will not be criticized for making prudent small business loans, "on the ground, the reality is different," Rep. Bill Posey (R-Fla.) said.  

Obama's proposed fund would use $30 billion from the Troubled Asset Relief Program to create a separate initiative that would infuse banks with cash that they could then lend to small businesses. 

At the joint hearing of the House Financial Services Committee and Small Business Committee, several small business owners expressed skepticism that the $30 billion would even be enough to improve the situation for small businesses. 

Rep. Nydia Velázquez (D-N.Y.), who chairs the Small Business Committee, questioned whether there are any restrictions that would prevent small banks from simply using the funds to cover their losses in commercial real estate. 

"Taking $30 billion and simply handing it to banks -- in the hopes that they will make loans -- is not sound policy," Velázquez said in her prepared remarks.  

Among the witnesses was Steve Gordon, a small business owner from Florida, who passionately critiqued the administration's efforts to aid small businesses. He said that because the government already helped banks, automakers, AIG Group Inc. and others, SBA should be able to offer a bailout in the form of loans directly to small businesses. Other witnesses echoed his sentiments. 

Under questioning from Rep. Al Green (D-Tex.), Treasury's TARP overseer, Herbert Allison, and acting director of the Office of Thrift Supervision, John Bowman, said the funding should be funneled through banks, as Obama's proposal calls for. 

But John Dugan, who leads the Office of the Comptroller of the Currency, said the funding would work better if it went through SBA and directly to businesses, bypassing banks. SBA Administrator Karen Mills would not answer Green's question about the best approach.  

Allison, Treasury's assistant secretary for financial stability, staunchly defended the administration's proposal, saying banks would have an incentive to lend since their dividends they would pay to the government on the cash they received would drop "dramatically" the more they lend.  

"The small banks we're talking about have done a pretty good job at maintaining lending balances during this difficult recession," Allison said. "We think many of them are eager to lend." 

He also repeated another argument the administration has made in support of the fund: banks that sign up would not suffer the same stigma as they do from TARP.  

But Velázquez said regulators' promises about the fund brought back memories of assurances from former Treasury Secretary Henry Paulson about TARP.

"What you're doing is giving a blank check - again," Velázquez said.

Bar Harbor Bankshares, the Maine-based holding company for Bar Harbor Bank & Trust, has redeemed the preferred stock it issued to the U.S. government and exited the Troubled Asset Relief Program.

The company repaid $18.75 million that it received from the Treasury Department in January 2009, along with all accrued and unpaid dividends. It completed the transaction on Wednesday.

As part of its participation in TARP, Bar Harbor also issued the Treasury a warrant to buy as many as 104,910 shares of its common stock at an exercise price of $26.81 per share.

The Treasury continues to hold the warrant, although the number of common shares it is entitled to purchase was halved by Bar Harbor's successful completion of a common stock offering in December.

That share sale generated $22.4 million and positioned the company to redeem its preferred stock.  Bar Harbor subsequently gained all the necessary regulatory approvals and moved quickly to exit TARP.

In a refreshing note of gratitude from a TARP beneficiary, Chief Executive Joseph M. Murphy said that the government's investment "enabled our Company to maintain a very strong capital position during extremely uncertain times while providing additional capacity and confidence to increase lending in our local markets."

The Treasury's warrant to buy 52,455 shares of Bar Harbor's common stock is close to showing a paper profit. The company's shares ended Friday at $26.75, just 6 cents below the exercise price.

Bar Harbor said it intends to repurchase the warrant from the Treasury at fair market value, but there is no guarantee that it will be able to come to terms with the agency on the price.

Intermountain Community Bancorp, a December 2008 recipient of $27 million in TARP funding, has posted a loss of $23 million for 2009.

The Sandpoint, Idaho-based holding company for Panhandle State Bank, Intermountain Community Bank and Magic Valley Bank was forced to triple its provisions for loan losses to $36.3 million in 2009, precipitating the deficit.

Intermountain's loan loss provisions for 2008 were $10.4 million. 

Although the company had recently seen its profits shrink, the annual loss was its first in more than a decade. Intermountain thus became part of a growing group of banks and holding companies that were deemed fiscally sound (or "healthy") when they were approved for the Troubled Asset Relief Program, but now are facing mounting losses because of deteriorating loan portfolios.

Intermountain had net income of $1.2 million in 2008 and $9.4 million in 2007.  It has posted losses in four straight quarters since the Treasury Department gave it $27 million in public money in return for preferred stock and warrants.

Curt Hecker, the company's chief executive officer, voiced his disappointment with the company's performance in a press release:  "Like many of our peers, our financial results in 2009 were, frankly, far below anything we would have predicted a year ago."

Doug Wright, chief financial officer, also noted that immediate help might not be on the horizon.  "We anticipate that our assets will be flat or down for the next few quarters," he warned.

Like many financial institutions, Intermountain is actively attempting to reconfigure its loan portfolio, shedding residential construction loans as well as many other commercial real estate assets. Agricultural lending, however, remains a healthy part of its real estate portfolio mix.

Intermountain's first steps toward improvement include avoiding certain types of real estate loans and even specific geographic areas.  The company said it would avoid making non-owner occupied commercial real estate loans in districts it believes were overbuilt during the boon of the early decade.

Even more apparent is the concerted effort to avoid investing in Boise, where delinquency levels and price declines have yet to stabilize.  Intermountain said it has aggressively reduced its exposure to Boise's turbulence over the past year.

It has implemented other cost control efforts in an attempt to stem its losses.  Employee compensation and benefits were cut by 11 percent for 2010, and its workforce has been reduced, "primarily through attrition."

In a welcome gesture for investors and taxpayers financing TARP, the Company eliminated all bonuses for executives and management at the end of 2009.

In a Congressional Oversight Panel hearing Thursday, GMAC Inc. executives said they doubt they will need a fourth round of bailout money from the federal government and expect to start paying back the $17.2 billion the compant has already received by 2012.

Critics have questioned the government's bailout of the auto and home lender, which is experiencing particular difficulty with its mortgage unit, Residential Capital. That business lost $10.3 billion in 2009, largely because of big writedowns on its loan portfolio.  

The federal government now owns 56.3 percent of GMAC and has appointed two members to its board. The government has provided GMAC with three cash infusions through the Troubled Asset Relief Program, a move that panel chair Elizabeth Warren called "without precedent" and deserving of "special scrutiny." 

"Three times GMAC asked Treasury to cast it a life line," Warren said. "And three times Treasury said yes." 

The hearing comes on the heels of a January panel report that is highly critical of the way Treasury handled the GMAC bailout. The report questioned the merits of the investment and said Treasury has never shown that a GMAC failure would have resulted in larger problems for the national economy. 

The financer also received special treatment regarding its capital requirements when government agencies conducted "stress tests'' to determine how certain banks and financial services companeis that got large amounts of TARP money would fare in an extended downturn.

 "In the face of criticism about the merits of saving GMAC, Treasury owes the public a more detailed and convincing explanation not only of its rationale for providing substantial assistance to GMAC, but also of its rationale for treating GMAC differently than other stress-tested institutions," the report read. 

Panel members grilled Treasury officials over the decision to offer GMAC several bailouts rather than allow it to go bankrupt.  

Treasury officials defended the decision to save GMAC while allowing both Chrysler and GM to enter Chapter 11 last year by arguing that adding GMAC to the bankruptcy mix would have further jeopardized the auto makers and put Treasury's own investments at risk. 

They also said it was necessary to prop up GMAC due to its integral role in providing auto financing for both consumers and dealerships. "The restructuring of GM and Chrysler wouldn't have been possible without saving GMAC," said Ron Bloom, senior advisor to the Secretary of the Treasury.

Jim Millstein, chief restructuring officer at Treasury, said it is rare for financing companies to successfully restructure in Chapter 11.  He added that a fourth loan to GMAC is unlikely. 

Yet analysts questioned by the panel said it would have been better for both GMAC and General Motors Co. had GMAC been allowed to join GM - from which it divested in 2006 - and let its other components go bankrupt. 

Warren also expressed skepticism at GMAC's move to become a bank holding company, which entitled it to receive additional bailout funds. "Why, in this case, do you function in this integrated way that makes you look like a financing arm of GM ... yet you get all the benefits of being an independent bank?" Warren asked. 

Michael Carpenter, GMAC's chief executive, described it online consumer bank, Ally, as "one of the best capitalized banks around" and "a bright spot" in GMAC. But others were skeptical.

Bank analyst Christopher Whalen said GMAC is essentially using deposits as a replacement for commercial paper and said it is extremely difficult for an Internet-based bank to be successful. His company Institutional Risk Analytics gave GMAC's Ally an "F" rating, based on its return on equity, charge-offs, capital, lending exposure and efficiency

Carpenter said the company plans for a public stock offering within the next year or two, and it will sell additional shares after that, to begin the process of exiting TARP.

"The business plan we have developed ... would lead me to the conclusion that we have a high likelihood of repaying the U.S. Treasury and taxpayer in full," Carpenter said.  

But Whalen added that an IPO would be unlikely as long as GMAC continues to have problems with Residential Capital, which Whalen dubbed a "functional equivalent of Chernobyl" and Carpenter himself called a "millstone around the company's neck."

Treasury Secretary Timothy Geithner touted the administration's proposed bank tax at a hearing before the House Budget Committee today, saying it would ensure that taxpayers would not have to absorb the cost of the bailout.

University of Louisiana-Lafayette Professor Linus Wilson is blending the lines between economics and psychology with his latest research, which appears to show that the Treasury Department has been outfoxed in its negotiations with financial institutions. 

Specifically, Wilson's analysis indicates that Treasury has fallen susceptible to "anchoring bias," a cognitive mistake people make when they focus on one specific piece of information that ultimately forms the basis of their decision making. 

As part of the Troubled Asset Relief Program, Treasury got warrants, similar to stock options, from companies that accepted bailout money. When financial institutions exited TARP, they had the option to buy back those warrants.

According to Wilson, financial institutions low-balled Treasury when they made their initial offers for those warrants, and they wound up purchasing them for less than fair market value. 

"I was surprised the first bid was so important. It seemed like it shouldn't be," said Wilson, who based his research on bids documented in Treasury's 2009 warrant reports. "I started looking at the bargaining literature... it was pretty well established, by mostly psychologists, who found that the opening offer usually is very important. But it shouldn't be important if you really want to do the best in negotiations." 

Of the 52 institutions that exited TARP in 2009, 31 repurchased their warrants from the government. Twenty eight of them made multiple bids as part of the process.

The Treasury sold the warrants of three other institutions at auction, and took no action on those issued by the 18 remaining  institutions.

Wilson's data was based on the 28 banks that repurchased their warrants and submitted multiple bids. Typically, such a sample would be too small to produce meaningful conclusions, but Wilson said the effect of opening bids were so pronounced that the small sample was still telling. 

The impact of the first bid explains about 56 percent of the ultimate price of a warrant, Wilson says. In other words, reducing an opening bid by 10 percent reduces the final selling price by 5.7 percent to 9.6 percent. That translates into big bucks, since the 28 transactions that Wilson studied involved $2.9 billion changing hands. The results, Wilson said, were surprising even to him.  

Wilson isn't the first person to point out that Treasury may not be getting its money's worth when it comes to warrant sales - though he does offer an interesting explanation. In its July report, the watchdog Congressional Oversight Panel analyzed warrant repurchases by 11 banks and found they got them for just 66 percent of their market value. 

Treasury has previously denied that it is selling warrants for less than fair market value. After the July report, Treasury officials told reporters that a discrepancy between different warrant valuations is to be expected. "We recognize that with non-traded securities, some will say that any price at which Treasury sells is too low, and some will say it is too high," agency spokesman Andrew Williams told the New York Times. "The problem is that model valuations alone do not represent what someone will pay for a warrant." 

There is some good news. Wilson said that Treasury seems to be getting better at negotiations and is improving its deals. As auctions are conducted, the department gets a better sense of what its warrants are really worth. 

But there's a caveat. Wilson says the improvements only become apparent when warrant sales are pegged to the values determined by Treasury's third-party assessor. The improvements disappear when they are pegged to the Congressional Oversight Panel's assessments. One possible explanation for the disparity: Treasury's third-party consultants are simply getting better at estimating the prices their client will accept.  

Wilson believes that Treasury is not inherently at a disadvantage in the negotiation process. But moving forward, the department should try to look past the initial offers and focus on reasons why the warrants may be worth more. After all, the warrants could sell for higher prices at auction, or Treasury could hold on to them and possibly turn a profit when they come to maturity. 

Treasury holds warrants in 230 publicly traded companies that have not repaid the money they received from the government through TARP's Capital Purchase Program.  

"I'm hopeful that the folks at Treasury will read this and correct for (anchoring bias)," Wilson said. "I think there are all kinds of mistakes we make as humans instead of these idealized economic agents. If you are aware of it, you can correct for it."  
 
 

Senate Banking Chair Chris Dodd (D-Conn.) has requested that federal regulators provide an update on how they have worked to stabilize the effects of commercial real estate lending, which has caused major loan losses to banks and is poised to threaten the economy in coming years.  

Dodd's request comes on the heels of a Congressional Oversight Panel report warning that almost half of commercial real estate loans are underwater and that massive losses could occur in 2011 and beyond. 

Dodd asked regulators to provide an update on how the guidance they issued on CRE lending in October has affected the market. He also asked the agencies to explain how they plan to respond to the looming crisis.  

"I believe that the weakness in the CRE market requires prompt and robust responses from the regulators to guard against harmful effects on financial institutions and the economy," Dodd wrote. "I urge you to redouble your efforts to provide appropriate oversight of this vital component of our economy, and look forward to working with you to bring much needed stability to the CRE market."

House Republicans are crying foul as the Treasury Department is apparently moving forward with plans to exclude the Special Inspector General for TARP from oversight of the administration's proposed $30 billion small business lending program. 

In a statement released Monday afternoon, Rep. Darrell Issa (R-Calif.), ranking member on the House Oversight and Government Reform Committee, called Treasury's intentions "disturbing." 

"Denying SIGTARP the ability to defend taxpayers sends a chilling message that IGs who conduct real oversight will be punished for holding this Administration accountable," Issa wrote.  

Neil Barofsky, the special inspector general for TARP, has been a harsh critic of Treasury and the program, noting in his January report that many of its goals "have simply not been met." 

Issa's outrage was in response to a letter that Barofsky sent Herbert Allison, who oversees TARP for Treasury. 

In the letter, released by Issa, Barofsky said that he was "surprised" to learn from Allison that Treasury is considering excluding SIGTARP from oversight of the Small Business Lending Fund, an apparent reversal from what Allison previously told him.  

A spokesman for the Congressional Oversight Panel, another TARP watchdog group that was sent a copy of Barofsky's letter, said the panel is not currently weighing in on the dispute. 

Barofsky, a former federal prosecutor, details his office's experience working as a watchdog and investigating malfeasance in TARP and, more specifically, the Capital Purchase Program. He wrote:

"Disregarding that expertise when developing a program that has the same goals, a very similar basic structure, that is being run by the same people, and that involves many of the same participants (and many of which might remain under SIGTARP's oversight in any event), would, at best, be terribly wasteful and lead to duplicative efforts and, at worst, could lead to significant exposure to waste, fraud and abuse as another oversight body gets up to speed (even assuming that another body could find the resources to do so)." 

Credit card reforms taking effect today require card issuers to provide further notice when they seek to raise rates, and to inform customers just how long it will take them to pay off their debts. 

The new regulations come as card issuers, banks and other financial institutions, seek to regain their financial footing in the wake of the economic recession. But the reforms, passed by Congress and signed into law last year, have drawn praise from consumer groups.

"The Credit CARD Act is an historic reform that will save consumers millions of dollars in unfair credit card fees and interest because of 'gotcha' tricks and traps that the industry started imposing about ten years ago," said Ed Mierzwinski of the U.S. Public Interest Research Group in a news conference last week.

Under the new rules, credit card companies must give 45 days' notice before they can increase interest rates, change fees or make other significant changes to the terms of the card. However, that rule does not apply to variable rate cards or cards with promotional or introductory rates that have expired.

Credit card companies will also have to disclose two types of information designed to help customers stay out of debt: how long it will take card holders to pay their balance if they only make minimum payments, and how much they will have to pay each month to clear their balance in three years.

The rules also require that credit card bills be mailed at least 21 days before their due date and stipulate that the due date should be the same date each month.

Cardholders under age 21 must now have a co-signer or show proof that they can make payments.

"Credit cards are a vital component of everyday life for consumers," said Luke Brown, the Federal Deposit Insurance Corp.'s associate director for policy issues involving bank compliance with consumer regulations, in a statement. "This new law will help you better manage your credit cards and avoid unpleasant surprises."

Last week, the American Bankers Association issued a statement touting the new consumer protections. "The rules taking effect ... are the most important step in an ongoing process that will increase protections and make card terms more predictable and manageable for customers," said Kenneth Clayton, senior vice president and general counsel for ABA card policy.  "Consumers are really placed in the driver's seat by these new rules."

But some consumer groups say the card rules do not go far enough to protect card holders from card issuers predatory practices. According to the Center for Responsible Lending, credit card issuers can still impose "hard-to-understand" charges for things such as purchases abroad or having no balance.

The group also notes that credit card issuers may - for any reason -- change the terms of cards for small businesses, close accounts, reduce credit lines and require card holders to send their grievances to an arbiter rather than court.

More provisions of the credit card law will go into effect Aug. 22. Among those is a rule requiring card issuers to reassess their interest rates every six months and reduce their APRs going forward, if appropriate. If it determines a rate hike is necessary, it must justify it to customers.

Five former Treasury secretaries wrote in a Wall Street Journal letter to the editor today that the proposed Volcker rule should be included in financial reform legislation.

The signatories include W. Michael Blumenthal, Nicholas Brady, Paul O'Neil, George Shultz and John Snow.

"Banks benefiting from public support by means of access to the Federal Reserve and FDIC insurance should not engage in essentially speculative activity unrelated to essential bank services," the secretaries wrote.

The secretaries say that institutions operating as hedge funds and performing speculative trading should "be free to fail" without taxpayer support, and non-banking firms that do present a risk to the economy should have to comply with regulations on their capital, leverage and liquidity.

The group calls the ban on proprietary trading a "key element in protecting our financial system," and urges the U.S. government to push the proposal internationally.

California Oaks State Bank is offering to sell a many as 8 million shares of its common stock, through a private placement with a target price of $12.50 a share.

The bank, which got $3.3 million in government aid through the Troubled Asset Relief Program last January, said it would use some of the proceeds from the offering to redeem the preferred stock it issued the Treasury Department and exit the program.

California Oaks, however, plans to do much more with the money than simply escape TARP. It announced that it also will use the proceeds of the private placement to buy back common stock from current stockholders, purchase vested stock options from bank directors and employees, increase its asset portfolio and acquire assets from failed institutions through negotiated deals with the Federal Deposit Insurance Corp.

California Oaks did not identify the directors or employees who would be benefiting from stock or options purchases, or specify the amount of money that they would receive.

The bank, which is based in Thousand Oaks, said it was offering the new shares only to accredited investors and institutional purchasers on a best-efforts basis, through placement agents.

Although the $3.3 million in government aid that California Oaks received is a small amount in terms of overall TARP participation, the bank appears to be an unlikely choice to cash out of the program, given that one of its intended goals is to help stabilize and strengthen financial institutions.

On the same day it announced plans to exit TARP, California Oaks reported that it lost $563,000 in 2009, one top of a $1.09 million loss the previous year.

California Oaks said a comprehensive management review of its credit quality found that the company had $611,217 in past due loans and more than $1.3 million in nonperforming loans at the end of the fourth quarter.

"This was especially disappointing," the company said, "after having no past due loans and only $993,000 in nonperforming loans in the third quarter."

In other words, the bank is looking to exit TARP at the same time that its loan portfolio is showing signs of greater stress. California Oaks, a business bank with $125 million in assets, said it has attempted to steer its loan portfolio away from what it deems riskier construction lending and toward more typical commercial lending.

California Oaks also has taken steps to reduce its operating expenses by renegotiating key contracts and downsizing its workforce.

"These two initiatives were not enough to counteract the dropping rates and the deterioration of credit quality caused by the down turn in the economy," Chief Executive Officer John Nerland said in a press release.

The bank's offering is subject to regulatory approval, as is its plan to exit TARP.

Monarch Financial Holdings Inc., the parent company of the Virginia-based Monarch Bank, has fully exited the Troubled Asset Relief Program by repurchasing the warrants it issued to the government in December 2008.

Monarch said that it bought the warrants in a negotiated settlement with the Treasury Department for $260,000. The warrants would have allowed the Treasury to purchase 132,353 of the company's common shares at an exercise price of $8.33 per share.

Monarch's stock ended last week at $6.64 a share.

Monarch took $14.7 million in TARP aid from the government in exchange for preferred shares and warrants. The company repaid the money and redeemed the preferred shares on Dec. 23, leaving the warrants as its final link to the program.

Brad E. Schwartz, Monarch's chief executive officer, proudly noted that Monarch also paid $665,583 in dividends to the government over the year or so that the Treasury held the preferred shares.

"Unlike the bailouts heard in the press and on the nightly news over the past year," he said, "this investment has not only been repaid in full, but has been repaid with a solid return to taxpayers."

Monarch announced Dec. 3 that it had completed a $20 million stock offering with an eye toward redeeming the preferred stock issued to the Treasury.

The company announced last month that it generated record profits of $1.22 million for the fourth quarter of 2009, and record profits of $4.85 million for the full year.

The FDIC announced two more bank closures, one in California and one in Illinois, bringing the total for the day to four, and the total for the year to 20.

In the largest bank failure of the day, the Office of Thrift Supervision shut down La Jolla Bank FSB in La Jolla, Calif. and named the FDIC receiver, regulators announced.   

All deposit accounts have been transferred to OneWest Bank FSB in Pasadena, Calif. - the same bank that took over IndyMac Federal Bank when it failed last year.  

La Jolla has nine locations in California and one in Dallas. They will now reopen as OneWest branches.

LaJolla had $3.6 billion in assets as of Dec. 31, making it the biggest bank to fail so far this year.

According to an OTS statement, "La Jolla Bank was in an unsafe and unsound condition to transact business and was critically undercapitalized with no reasonable prospect of becoming adequately capitalized."

The bank reported a $289.6 million loss for the final three months of 2009, on top of a $13.2 million loss in the previous quarter.

The bank's assets grew from $1.6 billion in 2004 to $3.3 billion in 2007, as it boosted lending for commercial and residential construction, land acquisition and development, and multi-family and commercial real estate, according to OTS data. But significant loan losses in 2008 and 2009 severely depleted its capital. 

La Jolla had $2.8 billion in deposits at the end of last year. OneWest did not pay the FDIC a premium to acquire them.

OneWest agreed to buy nearly all of La Jolla's assets. It entered a loss-sharing agreement with the FDIC on $3.31 billion of the roughly $3.6 billion in assets it acquired.

The bank's parent company, La Jolla Bancorp, was not included in the closing.

The agency said La Jolla's failure will cost its deposit insurance fund an estimated $882.3 million.

Also tonight, the Illinois Department of Financial and Professional Regulation closed George Washington Savings Bank in Orlando Park, Ill., and named the FDIC receiver, the federal regulator said in a statement. Accounts have been transferred to FirstMerit Bank N.A. of Akron, Ohio, and George Washington's four locations will reopen as FirstMerit branches. 

Holding company George Washington Bancorp was not included in the closure. 

George Washington had $412.8 million in assets and $397 million in deposits at the end of 2009. The company lost $29.4 million last year.

Fraud by management played a major role in the failure of La Coste National Bank, which was seized Friday by regulators.

A spokesman for the Federal Deposit Insurance Corp. told BailoutSleuth that the small Texas bank suffered "significant losses from fraud allegedly committed by the former President and Director."

The losses associated with the fraudulent transactions totaled $7.3 million, with related loan losses totaling $1.1 million, the spokesman, Greg Hernandez, said.

 "With the resignation of the former president, significant liquidity concerns exist as there is no one at the bank capable of overseeing the daily operations," he told BailoutSleuth in an email.

La Coste, founded in 1912, was shut down by the Office of the Comptroller of the Currency.  The FDIC was appointed as receiver and arranged for Community National Bank, of Hondo, Tex., to take over all of La Coste's deposits and virtually all of its assets.

La Coste's  lone office will re-open Monday as a Community National Bank branch, according to tonight's announcement..

La Coste had $53.9 million in assets and $49.3 million in deposits as of Dec. 31, the FDIC said. The bank was profitable last year, with net income of $209,000, and had not been the subject of federal enforcement actions.

Hernandez said he did not know the name of the bank president alleged to be involved in the fraud, or whether that person had been charged with any crimes. He referred those questions to the OCC, which could not immediately be reached for comment .

The OCC said in a statement that it took action after finding the bank had experienced "substantial dissipation of assets and earnings due to unsafe and unsound practices."

It also said that losses have left the bank "critically undercapitalized, and there was no reasonable prospect that the bank will become adequately capitalized without Federal assistance."

Community National Bank will pay the FDIC a 0.51 percent premium for La Coste's deposits. The agency said the closing will cost its deposit insurance fund an estimated $3.7 million.

La Coste was the 18^th FDIC-insured institution to be closed this year.

Florida's Marco Community Bank became the 17th FDIC-insured institution to fail this year.  

The single-branch bank in Marco Island was shut down by the Florida Office of Financial Regulation on Friday, and the FDIC was appointed as its receiver. Mutual of Omaha Bank will assume all of Marco's deposits.

The FDIC has told customers to continue using their existing branch and instructed them that debit cards, checks and ATMs can continue to be used as they normally would. Loan customers have been told to continue making their payments as usual.

The bank's failure came just a day after the Federal Reserve Board announced an enforcement action against Marco, ordering it to raise capital or arrange to be acquired by another institution. BailoutSleuth reported Thursday that Marco has suffered three straight years of losses, including a $14.1 million deficit in 2009. In a letter to shareholders earlier this year, President Richard Storm Jr. said the bank was "critically undercapitalized" as a result of loan losses and was in jeopardy of failing.  

The bank's holding company, Marco Community Bancorp Inc., was not included in the receivership.

According to the FDIC, Marco had $119.6 million in total assets and $117.1 million in total deposits as of the year's end. Mutual of Omaha will pay the FDIC a 1.5 percent premium to assume all of Marco's deposits. It has also agreed to purchase nearly all of Marco's assets.

Mutual of Omaha and the FDIC have a loss-sharing agreement on $104.8 million of Marco's assets. The agency estimated the cost to its deposit insurance fund at $38.1 million.

The Treasury Department will auction the warrants it holds in Bank of America Corp., Washington Federal Inc., Texas Capital Bancshares Inc. and Signature Bank.

The four banks have repaid the money they received through the Troubled Asset Relief Program and redeemed the preferred stock they issued to the Treasury; once the warrant auctions are compete, Treasury will no longer have any stake in the companies.

The department touted the forthcoming sale as a way to "provide an additional return to the American taxpayer from Treasury's investments" in the banks.

Under TARP, the Treasury provided money to banks in return for a special class of preferred stock, along with warrants to buy a set amount of common stock at a predetermined price. The stronger the banks get -- and the higher their share prices climb -- the more valuable those warrants become.

Banks that pay back their TARP aid are given the opportunity to repurchase Treasury's warrants. If they decline, the department can sell them at auction. The banks are eligible to bid on those warrants, and some may do so if they believe they can get them for a cheaper price at auction than they would have paid Treasury.

Deutsche Bank Securities Inc. will be the auction agent for the upcoming warrant sale.

Bank of America repaid its TARP funds in December, while Washington Federal, Texas Capital and Signature Bank all made their payments last spring.

Treasury's warrant holdings in the banks, according to the latest warrant disposition report, include:

-- 121,792,790 shares of Bank of America, exercisable at $30.79 per share.

-- 1,707,456 shares of Washington Federal, exercisable at $17.57 per share.

-- 758,086 shares of Texas Capital, exercisable at $14.84 per share.

-- 595,829 shares of Signature Bank, exercisable at $30.21 per share.

Bank of America's stock is trading well below the exercise price of the government's warrants. However, the shares of the other three banks are currently above the exercise price of their warrants.

Treasury also holds warrants in 14 other banks that have repaid their TARP money, according to the report.

Last year, the government earned $1.1 billion by auctioning off warrants in JPMorgan Chase & Co., Capital One Financial Corp. and TCF Financial Corp. It earned an additional $2.9 billion from 31 other banks that repurchased their warrants without auctions.

The Federal Reserve Board announced enforcement actions against four banks and holding companies Thursday, including an order requiring a Florida bank to raise additional capital or change ownership within 45 days. 

In a "prompt corrective action directive," the Fed ordered Marco Community Bank in Marco Island, Fla., to boost equity levels or find another bank or holding company to take over its operations. The directive also restricts executive compensation at the bank and mandates that the company take other corrective measures.

Marco has suffered three straight years of losses, including a $14.1 million deficit in 2009. In a letter to shareholders earlier this year, President Richard Storm Jr. said the bank was "critically undercapitalized" as a result of loan losses and was in jeopardy of failing. 

The Fed also announced written agreements with SunFirst Corp. in St. George, Utah; First National Corp. in Savannah, Ga.; and TCM Co. in Crete, Neb. Each was ordered to take corrective steps. 

It was the second day in a row the Fed took action against banks. On Wednesday, it announced agreements with three banks and holding corporations. 

The agreement with SunFirst Corporation, the holding company for SunFirst Bank, forbids it from paying dividends or incurring or guaranteeing debt without the Fed's permission. The bank suffered $5.2 million in losses last year.  

The agreement with First National, the holding company for First National Bank, and the agreement with TCM, the holding company for City Bank & Trust Co., both include similar restrictions.

First National has lost money two years in a row, including $14.7 million in red ink last year. City Bank & Trust earned $1.2 million in 2009.

Park National Corp., which got $100 million in public money through the Troubled Asset Relief Program, has authorized big increases in the salaries of its top executives.

Park National said in an SEC filing that its chairman and chief executive, C. Daniel DeLawder, would get a salary of $773,525 this year, up more than 63 percent from 2009.

The Newark, Ohio-based company said its president, David L. Trautman, would receive a salary of $563,250, a nearly 80 percent increase over last year. The company's chief financial officer, John W. Kozak, will get $414,455, up 93.2 percent.

Park National said the raises were set by the compensation committee of its board of directors. Its filing did not offer a rationale for the increases. The three executives will now receive in salary the exact same amount that they received in salary and bonus last year (which also matched their cash compensation for 2007).

Under federal compensation rules for TARP recipients, only the first $500,000 of each executive's salary is tax deductible. The rules also limit how companies can pay incentives or bonuses.

Park National said in its SEC filing that DeLawder received $300,000 last July 20, as an incentive award for the 12 months that ended Sept. 30, 2008 - prior to the company's participation in TARP.  Trautman got $250,000, and Kozak got $200,000.

Park National is the holding company for Park National Bank, which operates in Ohio and Kentucky, and Vision Bank, of Panama City, Fla. It reported a profit of $17.8 million for the third quarter, compared to a loss of $38.4 million for the same period a year earlier, when it took a $55 million goodwill impairment charge related to its 2007 acquisition of Vision.

It had net income of $61.9 million for the first nine months of 2009, compared with a profit of $2.76 million in the first nine months of 2008.

The Federal Reserve Board announced this week that it signed agreements with three banks in an effort to force them to take steps to improve their financial health.

The affected banks are Community First Bank-Chicago, Beach First National Bancshares, Inc. in Myrtle Beach, S.C., and Community National Bancorporation in Waterloo, Iowa

Under the agreement, the Community First Bank-Chicago bank is required to submit to the Fed a series of plans that address ways it intends to:

      Reduce risk exposure, minimize credit losses and reduce its levels of problem assets.

      Reduce its risk of commercial real estate concentrations.

      Ensure that its appraisals conform to industry standards.

      Improve the bank's position through repayment, or other means, on each of its loan or other asset greater than $250,000 that is past due.

      Maintain sufficient capital and liquidity.

In December, the Chicago Tribune reported that Community First Bank, along with dozens of other Chicago-area banks, had seriously delinquent loans and foreclosed real estate on its books that were dangerously close to its level of reserves and capital. 

The agreement with the Fed forbids the bank from extending credit, without prior approval, to any borrower whose loans are criticized in Fed's bank exam. It also requires the bank to submit a business plan for 2010 that will explain how it intends to improve its earnings and overall condition. 

The agreement further prohibits the bank from paying dividends without the Fed's permission. A committee will be appointed by the bank to ensure it abides by the terms of the terms of the agreement. 

Beach First National Bancshares Inc. agreement requires it to:

      Take steps to comply with a November agreement with the Office of the Comptroller of Currency.

      Not pay dividends without the Fed's permission.

      Not increase or guarantee any debt without the Fed's approval.

      Submit a plan to maintain sufficient capital.

Beach First suffered a net loss of $6.03 million during the fourth quarter, The Sun News in Myrtle Beach reported. In the third quarter, it had a $14.2 million loss. 

The Community National Bancorporation agreement requires it to:

      Not pay dividends without the Fed's permission.

      Not increase or guarantee any debt without the Fed's approval.

  Submit its planned sources and uses of cash for debt service,   operations and other expenses.

Rising Sun Bancorp and its sole subsidiary, NBRS Financial Bank, have entered into an oversight agreement with the Federal Reserve Bank of Richmond and the Maryland Division of Financial Regulation.

The agreement addresses many areas of concern, including inadequate board oversight, irregular management structure, very high concentrations of commercial real estate loans, insufficient allowances for loan and lease losses, and weak asset management.

Rising Sun Bancorp got nearly $6 million in government aid through the Troubled Asset Relief Program in January 2009, in exchange for preferred stock. Although the company has been paying dividends on that stock, it has yet to make any move toward redeeming the shares or the warrants for common stock that it issued to the government.

The oversight agreement was announced with little fanfare earlier this month. The accord, dated Feb. 2, itself refers to an earlier "Report of Examination" of the bank that commenced Sept. 7.

That report was critical of many of Rising Sun's practices, especially its extensions of credit to borrowers that the Federal Reserve Bank deemed unlikely to repay their loans. The findings seem to be the genesis of the new agreement.

Rising Sun was given firm deadlines to address its shortcomings.  Within 60 days of the agreement, it must submit to the Federal Reserve Bank and the Maryland Commissioner of Bank Supervision a written plan to strengthen board oversight of its management and overall business.

At the same time, Rising Sun's board of directors must complete an assessment of the bank's management structure, a written plan to strengthen credit risk management practices, and one to reduce the risks of the bank's commercial real estate concentrations.

The bank was granted the same 60-day term to proffer a suitable plan to maintain sufficient capital, and to devise a plan for 2010 that will address all major shortcomings cited in the agreement.

Rising Sun may not pay any dividends without prior written approval of its regulators, nor may it purchase or redeem any of its stock without prior written approval of the Federal Reserve Bank.  The last stricture would, of course, make it impossible for the company to exit TARP without the blessing of the Reserve Bank.   

Incidents of possible mortgage fraud were on the rise prior to the economic meltdown, climbing 23 percent from 2007 to 2008, according to a new report by a federal agency.

The government tracked suspicious activities reports, known as SARs, filed by financial institutions. In 2008 there were 64,816 filed, up from 52,868 the previous year and just 3,515 in 2000. 

The report was released by the Federal Financial Institutions Examination Council, which promotes uniform reporting standards among the government's financial system regulators. 

"Mortgage fraud continues to result in significant losses for financial institutions," the agency wrote in its study, released Tuesday. "It is imperative that examiners and financial institution personnel understand the nature of the various schemes and recognize red flags related to mortgage fraud." 

The paper outlined dozens of forms of mortgage fraud - and warning signs of each - so that regulators and financial institutions can become more vigilant. The agency included a list of more than two dozen federal criminal statutes that can be used against those who commit mortgage fraud. 

The extent of the problem, in terms of dollar figures, is unclear, the agency said. But it noted that in fiscal year 2008, at least 63 percent of all FBI mortgage fraud investigations involved losses of more than $1 million.  

The Financial Crisis Inquiry Commission will hold a two-day forum in Washington this month to hear from academics about the causes of the financial crisis, the panel announced this week.  

The meeting comes on the heels of FCIC hearings last month, in which the commission heard from Wall Street executives and regulators. The forum will be Feb. 26 and 27 at the American University Washington College of Law. 

The professors will present working papers to the commissioners and then answer their questions. Confirmed speakers include:

-- Princeton University economics professor Markus Brunnermeier, who will discuss derivatives and other complex financial instruments.

--  Yale University economics professor John Geanakoplos, who will discuss risk-taking and leverage.

--  Yale University finance professor Gary Gorton, who will discuss shadow banking.

-- University of California, Berkeley economics professor Pierre-Olivier Gourinchas, who will discuss  macroeconomic factors and U.S. monetary policy.

-- University of Californa, Berkeley banking, financing and real estate professor Dwight Jaffee, who will discuss government-sponsored enterprises and housing policy.

-- University of Chicago economics and finance professor Anil Kashyap, who will discuss firm structure and risk management.

-- University of Chicago economics professor Randall S. Kroszner, who will discuss interconnectedness of financial institutions and the notion of "too big to fail.''

-- Dartmouth University economics professor Annamaria Lusardim, who will discuss households' finances and financial literacy.

-- Columbia University real estate professor Chris Mayer, who will discuss mortgage lending practices and securitization. 

The FCIC said it has already met with other economic and financial experts, including Martin Baily, Simon Johnson, David Moss, Carmen M. Reinhart, Kenneth T. Rosen, Hal S. Scott, Joseph E. Stiglitz, John B. Taylor, Mark Zandi and Luigi Zingales.

Umpqua Holdings Corp., which owns Umpqua Bank, has raised $303.6 million through a stock offering, and will use some of the proceeds to redeem $214.2 million in preferred shares from the Treasury Department and exit the Troubled Asset Relief Program.

"This is our second successful equity securities offering within a six-month period and it adds to our strong capital position, providing the opportunity to repay the Treasury's Capital Purchase Program investment in the Company and additional capital support for continued organic growth and acquisitions," President Ray Davis said in a press release.

Umpqua got $214.2 million in public money through TARP in November 2008, issuing preferred stock to the Treasury Department in return.

Earlier this month, Umpqua announced that it was selling 7.5 million common shares and 16.5 million depository shares at $11 each, representing gross proceeds of $264 million. The company's underwriters exercised their overallotment option for an additional 3.6 million shares, lifting the amount of capital that the bank raised.

After commissions and expenses, Umpqua received $287.9 million. The company, which has headquarers in Portland, Ore., raised $258.7 million through an earlier common share sale in August.

At the time, the company said the new capital would be used for general corporate purposes--including growth and acquisition opportunities--and to position the company for the eventual redemption of its preferred stock from the Treasury.

Umpqua said it planned to use capital from the new offering to benefit from "FDIC-assisted acquisition opportunities," such as its recent assumption of all operations of the former EvergreenBank.

When that Seattle-based bank was closed by the Washington State Department of Financial Institutions on Jan. 22, the Federal Deposit Insurance Corp. was appointed as receiver.

Umpqua was the successful bidder for the bank's assets, and all deposits and loans were transferred to Umpqua through a purchase and assumption agreement.

On Jan. 16, 2009, Umpqua also acquired the insured deposits of the failed Bank of Clark County in Vancouver, Washington.

Umpqua posted a $26.7 million loss for the fourth quarter, and a $153.4 million for all of 2009. Despite the red ink - which the company attributed to significantly higher loan loss provisions -- it still managed to pay a small fourth-quarter dividend.

The Federal Deposit Insurance Corp. has announced two more loan auctions, covering approximately $89 million in assets from four failed banks.

Bids are due Tuesday for roughly $26 million of performing and non-performing commercial and industrial loans and consumer loans from the failed Irwin Union Bank & Trust Co. of Columbus, Ind., and Irwin Union Bank, F.S.B. of Louisville, Ky. 

Each was a subsidiary of Irwin Financial Corp. of Columbus, Ind.  State and federal regulators closed both banks on Sept. 18, 2009 and the FDIC was appointed as receiver.

Although the FDIC entered into a purchase and assumption agreement with First Financial Bank N.A., of Cincinnati, to assume the banks' branches and deposits, it still was left with millions in assets.

In fact, this is the second round of FDIC auctions for the remnants of Irwin Union Bank & Trust.  BailoutSleuth reported in December 2009 on the first round of $73 million in loan participations.

The current portfolio, again marketed by the advisory firm of Eastdil Secured, consists of 51 loans to be pooled according to performing status and geographic concentration.  Approximately eight of the loans have a balance beyond $1 million, while the rest average $165,000.

Collateral for the loans is concentrated in the Midwest and western United States.  Neither the FDIC loan sales web page nor Eastdil Secured's public web pages provide the ratio of performing to non-performing loans.

Bidding ends Feb. 23 on the second auction, consisting of approximately $63 million in performing and non-performing commercial real estate loans.  The assets are related to the FDIC receiverships of Hillcrest Bank Florida of Naples, Fla., and RockBridge Commercial Bank of Atlanta, Ga.

The banks were closed by state and federal regulators on Oct. 23, 2009 and Dec. 18, 2009, respectively.

Stonegate Bank of Fort Lauderdale, Fla, assumed the deposits and branches of Hillcrest Bank, but the FDIC could not find an instition willing to take over RockBridge.

The Debt Exchange Inc. is marketing the commercial real estate loans as 25 separate pools. The FDIC said the overall portfolio consists of about 38 percent seasoned performing loans and about 62 percent non-performing loans.  The collateral is various types of property, primarily in Arizona, Florida, Georgia and Tennessee.

Bidding requirements for the first auction can be found at the registration overview page of Eastdil's website.  Bidding on the second auction is expressly limited to FDIC-insured banks.

BailoutSleuth continues to track these auctions and sales as part of our coverage of the upheaval in the financial industry.

Commercial real estate losses approaching $300 billion in coming years could put thousands of community banks in jeopardy and send the economy into a tailspin, the Congressional Oversight Panel wrote in a new report released Thursday.

The government's TARP watchdog group reported that from 2011 to 2014, $1.4 trillion in commercial real estate loans made over the last decade will require refinancing. But in nearly half those cases, the borrower owes more than what the underlying property is worth, creating the potential for hundreds of billions of dollars in defaults.

"Even borrowers who own profitable properties may be unable to refinance their loans as they face tightened underwriting standards, increased demands for additional investment by borrowers, and restricted credit," the panel's report said. "(A) significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American."

The report's findings are not a surprise to those who follow commercial real estate lending, but they do highlight a looming concern for banks, borrowers and regulators as the country seeks to recover from the financial crisis and avoid future calamities.

Nationwide, 2,988 banks are classified as having "CRE concentration," according to the report, and none are large bank holding companies, signifying particular risk for community banks. The worst losses are expected well after Treasury's TARP authority ends, the panel notes.

The panel expects the greatest comemrcial real estate loan losses - of $200 billion to $300 billion -- to hit in 2011 and beyond. The loans typically only have terms of three to 10 years and thus require frequent refinancing.

The commerial real estate market is facing a double threat. First, the economic downtown has caused growing vacancies and falling rental rates, which will affect the borrowers' ability to repay their loans. As the value of commercial property falls, borrowers have greater difficulty refinancing - even if the original loan was sound.

Commercial property values have fallen more than 40 percent since the beginning of 2007, the panel reports, and many buildings remain empty. Vacancy rates are 8 percent for apartments and 18 percent for offices; average rents have fallen 40 percent for office space and 33 percent for retail space.

Secondly, the real estate bubble caused some commercial real estate loans to be based on unrealistic rental or cash flow projections in the first place, so those borrowers will also have difficulty with repayment. The loans most likely to fail were made during the height of the real estate bubble, when commercial real estate values had been artificially driven up, and loans were made hastily to turn a profit, the panel reports.

Meanwhile, community banks became heavily invested in often-risky commercial real estate loans as larger, less regulated institutions came to dominate residential real estate and credit cards. Simultaneously, consumers increasingly turned to credit unions for personal loans.

"They're not diversified  like the larger banks," said Michelle Lucci, a former bank examiner who blogs about CRE loans, in an interview with BailoutSleuth. "It's just the way it's always been....I don't see that changing going  forward."

The American Bankers Association released a statement Thursday calling the government's new report "misleading" and full of "sweeping generalizations." It called for greater government investment in community banks.

"The ABA has been urging Treasury for over a year to invest in banks that are struggling but viable," the group said. "However, the government's investments to date have left those community banks on the sidelines that would most benefit from some help. We urge policymakers to create capital options for viable community banks."

The oversight panel offered few solutions for a second financial crisis affecting banks. Government intervention - this time for community banks - could encourage even more risk taking. Alternatively, the government could allow banks to fail and sell their assets, as it has with more than 180 institutions since the start of 2008.

Policymakers will have to weigh the importance of individual banks to their commnities and take into consideration the fact that smaller banks were not the focus of TARP as they move forward, the panel concludes.

"The Panel is concerned that until Treasury and bank supervisors take coordinated action to address forthrightly and transparently the state of the commercial real estate markets - and the potential impact that a breakdown in those markets could have on local communities, small businesses, and individuals - the financial crisis will not end," the report states.

Critics like Lucci are urging heightened capital requirements that would force banks to maintain more capital as they cross certain thresholds of CRE investment so that they could absorb some of the risk.

Lucci also advocated for more stress testing for community banks. The report notes that small and mid-sized banks were not subjected to last year's bank stress tests, despite being especially vulnerable to CRE loan losses. "We should look forward when we're assessing risk instead of looking backward," Lucci said.

PNC Financial Services Group, Inc. has repaid all of the $7.6 billion it received through the Troubled Asset Relief Program. bringing the total amount of TARP funds returned to the Treasury Department to more than $173 billion, the bank and the agency announced.

Earlier this month, BailoutSleuth reported that PNC was raising capital to exit TARP by offering $3 million of common stock and $2 billion of senior notes, and by selling its global-investment servicing unit to Bank of New York Mellon for $2.3 billion.

"With signs of an improving economic environment and stabilizing financial system, we believe now is the appropriate time for us to redeem the preferred shares held by the U.S. Treasury," PNC Chairman James Rohr said in a Feb. 2 statement. "As a result, we are pleased to have reached an agreement with our regulators to return the taxpayers' investment in PNC."

Pittsburgh-based PNC got its cash infusion from the Treasury in October 2008, partly to help with the government-arranged acquisition of struggling National City Bank.

Of the 10 banks that received the most TARP aid, PNC is the eighth to repay the full amount and retire the preferred shares held by the government.

Exactly one year after his first speech as Treasury Secretary, Timothy Geithner issued a new statement aimed at redemption and validation.

Geithner's original remarks, which outlined the administration's plan to shore up the economy, were almost universally panned. The Dow Jones Industrial Average even plunged nearly 400 points following the address.

On a slow news day in Washington Wednesday - a blizzard has closed the federal government - Geithner took the opportunity to issue a statement praising the administration's work since then.

"Access to credit is improving and the cost of borrowing for businesses, consumers, homeowners, and state and local governments have fallen sharply," Geithner wrote. "In addition, we have achieved this progress at much lower cost than anticipated. By encouraging private capital solutions rather than relying on public funds, the expected cost of stabilizing the financial system has fallen by more than $400 billion. We expect it will fall even further."

Geithner also urged Congress to pass President Obama's proposed  Financial Crisis Responsibility Fee, which would levy a fee on the largest banks to recoup the costs of the $700 billion Troubled Asset Relief Program.

Read Geithner's full announcement here.

Two large life insurers used TARP money intended to promote lending instead for their insurance businesses, according to the Special Inspector General for TARP report released last week.

The report - which is highly critical of how the Troubled Asset Relief Program has been run in general - explains how The Hartford Financial Services Group Inc. and Lincoln National Corp. secured funding from TARP's Capital Purchase Program, which is designed to further consumer and business lending.

By purchasing small thrift institutions, the two insurers technically became eligible for the funds, according Neil Barofsky, TARP's special's inspector general. In June 2009, Hartford secured access to $3.4 billion from the program, and the following month Lincoln gained access to $950 million.

The funding was determined by the assets of the companies, rather than those of the underlying thrifts themselves, which drew Barofsky's criticism.

TARP rules did not require that the insurers' CPP funding be connected to thrift activities, according to the report, and both insurers concede that they used the bulk of the funding to support their  insurance businesses - not lending.

"Stated another way, simply by purchasing comparatively tiny thrifts, Hartford and Lincoln - companies whose primary businesses... have little to do with lending to consumers and businesses - gained access to more than $4.3 billion in taxpayer funds, an amount that is many multiples of the thrifts' total assets," Barofsky wrote in his report.

Both insurers did not respond to multiple requests from BailoutSleuth for comment.

Hartford

According to an audit released by Barofsky's office in December 2009, Hartford used $3.2 billion of its $3.4 billion in TARP money to invest in "high quality, short-term investments or money market funds," which allowed it issue more insurance policies. It used $195 million of the TARP funds to pay for the recapitalization of Federal Trust Bank, the thrift it purchased.

Federal Trust, a 10-branch thrift stock-savings bank based in Sanford, Fla., was a "troubled" bank and would have likely gone into receivership in the first quarter of 2009 had it not been for Hartford's purchase, according to the audit.

The report goes on to say that "Hartford received substantially more TARP funds than the thrift could have received had it applied and been accepted for TARP funds on its own" - which would have been about $18 million.

Hartford sought TARP funding as a cushon for losses it suffered in its mortgage-backed securities investments through 2008. Treasury officials also concede that the primary purpose of Hartford's acquisition of Federal Trust was to gain access to TARP  funds, according to the audit, and without the deal Hartford would have been ineligible for the program.

In January 2009, the Treasury Department's Office of Thrift Supervision approved Hartford's purchase of the thrift, contingent on Treasury's approval of Hartford's participation in TARP. The purchase was completed June 24, and two days later Treasury provided Hartford with the $3.4 billion in TARP funds in exchange for 3.4 million shares of dividend-paying preferred stock and a warrant to purchase up to 52 million shares of common stock to be exercised at $9.79 per share.

The audit notes that Hartford was not required to segregate its TARP funds, although it agreed to do so. Less than 6 percent of Hartford's TARP funding is allocated to Federal Trust - the very institution that made it eligible for TARP money in the first place.

Of that $195 million, Federal Trust used $47 million to repay high-cost liabilities, and the rest was deposited into its Federal Reserve account.

Lincoln

Lincoln invested $608 million of its $950 million in TARP money in domestic corporate bonds and mortgage-backed securities, and the remaining $342 million was to be invested in commercial mortgage-backed securities, commercial real estate loans, domestic bonds, and asset-backed securities.

It used $10 million of its own funds to capitalize Newton County Loan & Savings FSB and become eligible for the TARP funds.

Newton County, a federal mutual savings thrift with $7 million in assets, operated a single branch in Goodland, Ind., and had just three employees, according to the audit. Lincoln officials reportedly said they sought a small thrift because they were relatively unfamiliar with the savings and loan industry and sought to minimize their risk.

Lincoln pursued TARP funds due to its $506 million in posted losses in the fourth quarter of 2008, and it was seeking capital to increase its liquidity at at time when the credit markets were unstable, the audit reports.

It sought permission from the Office of Thrift Supervision to become a thrift holding company on Nov. 14, 2008. and agreed to buy Newton County the same day. 

Both Lincoln and Treasury officials state that the primary purpose of the Newton acquisition was for Lincoln to get TARP funds, but Lincoln officials added that it had considered acquiring a bank or thrift even before it began pursuing government aid.

On its own, Newton would have been eligible for a maximum for $350,000 in CPP funds, but the purchase made Lincoln eligible for up to $2.5 billion. Lincoln ultimately sought $950 million, which it received in July 2009. In exchange, Treasured received 950,000 shares of dividend-paying preferred stock and a warrant to purchase around 13 million shares of common stock at $10.92 per share.

In its CPP application, Lincoln stated it would channel the majority of the TARP proceeds into life insurance subsidiaries to increase their capital and invest in corporate bonds, commercial mortgage loans and mortgage backed securities.

"According to Lincoln officials, the use of TARP funds is consistent with the company's lending activities and the original intent of the CPP, namely investing in funds to support the U.S. economy and providing credit to credit markets," the audit reads. The funding helped Lincoln's business since as an insurer, as insurance companies must keep a specific amount of capital on hand based on the number of policies they have issued. Thus, TARP funds would allow the company to accept more insurance deposits.

Treasury

In its response to the SIG TARP audit, Assistant Secretary for Financial Stability Hebert Allison explains that the act that created TARP specifically includes insurance companies in its broad definition of "financial institutions" eligible for TARP money.

He also reiterated that inclusion of Hartford and Lincoln in the program "reflect(s) the consistent application of the rules of the program."

Barofsky responded by saying that Treasury "misses the point." While the insurers' participation was not necessarily a violation of the rules, "such participation was incongruous with the spirit and intent of the CPP program."

He goes on to write: "As it happened, the insurance companies reported that they used little (in the case of Hartford) or no (in the case of Lincoln) TARP funds in connection with the subsidiary thrifts' activities but rather used the vast bulk of the funds to support their insurance business."

Barofsky also says in his audit that Treasury could have created a program specific to insurers, as it did for other non-banking businesses such as AIG and the auto industry.

"Simply put, Treasury fit the enormous investments in these insurance companies, huge proverbial pegs, into the small round hole represented by the technical CPP eligibility brought about through these targeted acquisitions."

TARP watchdog Elizabeth Warren called on Congress to pass President Obama's proposed Consumer Financial Protection Agency as a way to help Americans navigate the complicated world of banks and credit cards.

Warren is a Harvard University law professor who heads the Congressional Oversight Panel, created to oversee the Treasury Department's actions and to review the state of the financial markets and the regulatory system.

In a strongly worded column in Tuesday's Wall Street Journal, Warren criticized banks, brokers, regulators and Wall Street for selling deceptive mortgages and repacking them as securities.

She also highlighted misleading practices by credit card companies and overdraft fees levied by banks as other examples of how consumers have been squeezed in recent years. Banks have squandered the public's trust like "worthless trash," Warren wrote, and CFPA may be the only way they can regain it.

She noted that President Obama's reform measures have been stalled in the Senate, as "the same Wall Street CEOs who brought the economy to its knees have spent more than a year and hundreds of millions of dollars furiously lobbying Washington to kill the president's proposal for a Consumer Financial Protection Agency."

Warren touted the agency as a way to cut down on bureaucracy by consolidating various other agencies, reducing paperwork and helping consumers understand and compare products. "Complaining about short, readable contracts and efforts to slim down bureaucracy only further diminishes the banks' credibility," she wrote.

The proposal, part of the Restoring American Financial Stability Act being shepherded through the Senate by Senate Banking Committee Chair Chris Dodd (D-Conn.),  would help "root out gimmicks and traps and slim down paperwork" for families seeking to compare products such as mortgages, credit cards and checking accounts.

Critics, however, say it would actually create more bureaucracy in Washington and could inhibit small businesses' ability to obtain credit. According to Warren, Wall Street executives believe that they "cannot get rid of fine print, deceptive pricing, and buried tricks unilaterally without losing market share."

Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, praised Warren's column. "No one familiar with the track record of the bank regulatory agencies with respect to protecting consumers can deny the need for an independent agency if we are going to have effective consumer protection," Frank said in a statement.

Warren also singles out  JPMorgan Chase & Co. Chairman Jamie Dimon, who told the Federal Crisis Inquiry Commission last month that a financial crisis can be expected every "five to seven years.:

"He is wrong," Warren wrote. "New laws that came out of the Great Depression ended 150 years of boom-and-bust cycles and gave us 50 years with virtually no financial meltdowns. The stability ended as we dismantled those laws and failed to replace them with new laws that reflected modern business practices."

Bank of America Corp. and the Securities and Exchange Commission will need to wait a bit longer to learn the fate of their $150 million preliminary settlement related to the bank's now infamous takeover of Merrill Lynch & Co.

U.S. District Judge Jed S. Rakoff told a Manhattan courtroom this week that he still had questions about the proposal and the amount of the penalty, and that he wanted further information in order to render his decision.

Bank of American got $45 billion in public aid through the Troubled Asset Relief Program, including a second cash infusion intended to aid in its acquisition of Merrill Lynch.

The SEC claims that Bank of America executives failed to disclose information to investors regarding Merrill Lynch's bonuses and the extent of its mounting losses as the two entities approached shareholder votes on the merger in late 2008.

Rakoff has until Feb. 19 to decide whether to approve the settlement and to begin distributing the proceeds among the investors who held Bank of America stock at the time of the deal.

Should he decide not to approve the settlement, the case is slated to go to civil trial on March 1.

The delay and the possible route to trial come as unwelcome results for both parties.  The SEC clearly wants the entire Bank of America affair to go away, and Rakoff has gone out of his way to scold the agency for acting far too leniently toward the company and its executives.

Last September, Rakoff refused to sign off on a $33 million settlement between the parties.

Bank of America, which has a new chief executive and has been  overhauling the rest of its mangement team, wants out of the same limelight.

The bank hopes to return to some semblance of normalcy as it moves further away from the tenure of former CEO Kenneth Lewis, who stepped down at the end of last year.

Rakoff's opinion that $150 million was probably still inadequate, and that a $300 million or $600 million settlement was more on target, may still be good news to the bank if it means avoiding further public litigation.

On the same day that Bank of America and the SEC reached their initial accord (February 4), New York State Attorney General Andrew Cuomo filed a lawsuit against Bank of America and its former top executives in New York Supreme Court.

Cuomo's suit claims that former Lewis and former Chief Financial Officer Joe Price duped both shareholders and the federal government in order to complete the takeover of Merrill Lynch. 

Cuomo also alleged that Lewis and Price intentionally hid mounting losses at Merrill Lynch from Bank of America shareholders so the deal would meet with quick approval.  Then, the suit contends, once the merger was approved, Lewis threatened that the bank would walk away unless it got another huge TARP injection of $20 billion.

The New York attorney general's lawsuit, unlike the SEC case, claims this was done with intent rather than negligence. 

The House Oversight and Government Reform Committee is investigating the Treasury Department's Making Home Affordable program amid concerns about its effectiveness and efficiency, Committee Chair Edolphus "Ed" Towns (D-N.Y.) announced over the weekend.

MHA's $75 billion Home Affordable Modification Program - which can tap up to $50 billion in funds from the Troubled Asset Relief Program - provides incentive payments to lenders who reduce mortgage payments for responsible borrowers.

Lenders get the incentives when the borrowers' mortgage payments fall to 31 percent of their monthly incomes or less.

The program, introduced in February 2009, seeks to bring relief to homeowners struggling to make mortgage payments, and to prevent communities from suffering the negative effects of foreclosures, such as depressed housing prices and increased crime.

But the program has come under recent scrutiny for failing to live up to those goals. In its most recent report, Treasury indicates that, as of December 2009, there were more than 850,000 active modifications in HAMP -  but less than 67,000 are permanent modifications, with the remainder in trial periods.

The committee is concerned that some lenders have been too slow to modify their loans and are inconsistently applying the program, according to the announcement.

The most recent quarterly report from TARP's Special Inspector General found that, as of the close of 2009, Treasury had signed agreements with 102 lenders and allocated up to $35.5 billion under the HAMP program. Of that sum, just $15.4 million had been spent on incentives for 11,574 of 66,465 permanent modifications, with the remainder to be paid the following quarter.

"While I applaud Treasury's efforts, numerous concerns have been brought to my attention regarding the effectiveness and efficiency of the MHA program and the extent to which it has assisted struggling homeowners," Towns said in a statement.

Towns has requested data on the program from Treasury Secretary Timothy Geithner, and a response is expected by Feb. 18, according his committee's announcement. Among Towns' criticism is the department's refusal to clarify how it defines "net present value" - a determining factor of a homeowner's eligibly in the program. Towns also criticized the program for failing to require that lenders give homeowners an explanation for a denial, and for failing to establish an appeals process.

Relatively few of the eligible delinquent mortgages have translated into permanent modifications. For example, fewer than 2.5 percent of eligible mortgages at Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. have been granted permanent modifications.

Mortgage lenders have blamed the lack of permanent reductions on borrowers who are not filing the proper paperwork to convert trial modifications into permanent ones. In testimony to the House Financial Services Committee in December, Bank of America executive Jack Shakett highlighted the difficulty obtaining necessary documentation from borrowers, citing ineffective communication and misunderstandings about the program. Meanwhile, consumer advocates say problems with the program lie with the lenders, who are not abiding by its rules.

In his letter to Geithner, Towns requests a long list of information including data on trial modifications, data on permanent modifications, criteria used to determine an applicant's eligibility, and the "re-default rate" of borrowers after their mortgages have been modified. Towns also asks about the number of in-house and contract staffers administering the program and ensuring compliance.

Treasury spokeswoman Meg Reilly declined to comment on the investigation until the department formally responds to Towns.

In his Sunday appearance on ABC's "This Week," Geithner maintained that more than 750,000 people have seen homeowner relief in the program - a reference to the number of trial modifications. "Of course we're going to make sure that those temporary modifications translate into permanent modifications," he said.

"Those programs were enormously affective in helping ... pull a housing market that was in near collapse back to the point now where there are signs of stability," he added.

CIT Group Inc., whose bankruptcy all but wiped the Treasury Department's $2.3 billion investment in the company, has hired former Merrill Lynch & Co. head John Thain as its new chief executive.

According to a Securities and Exchange Commission filing, Thain will receive a base salary of $6 million a year -- $500,000 in cash and $5.5 million in restricted stock. He also will be eligible for incentive bonuses, with the target amount for 2010 set at $1.5 million.

CIT, a major lender to small businesses, got $2.3 billion in public aid through the Troubled Asset Relief Program in December 2008. Despite that infusion, its financial condition continued to deteriorate, and it sought refuge in U.S. Bankruptcy Court last November.

The reorganization plan approved the following month rendered the Treasury's preferred shares in CIT worthless, although the agency government came away with certain "contingent value rights'' in the revitalized company.

Bank of America Corp. agreed in September 2008 to acquire Merrill Lynch, which like many other Wall Street firms was struggling because of declining asset values and an abrupt lack of liquidity.

Although Thain joined Bank of America when the $50 billion deal was completed, he was ousted just a few weeks later, amid public outcry over the payment of $3.6 billion in bonuses to Merrill Lynch employees just before the closing.

Bank of America's failure to disclose those payouts to its shareholders prior to a vote on the merger led the SEC to bring civil charges against the company . The SEC filed a second civil action last month, alleging that Bank of America also failed to disclose "staggering financial losses'' at Merrill Lynch that could have caused investors to vote against the deal.

Bank of America agreed to a $33 million settlement with the SEC on the original charges, but the U.S. District Court judge hearing the case rejected the pact.

Bank of America and the SEC asked the judge at a hearing Monday to approve a new $150 million settlement that covers both cases.

Regulators seized just one bank Friday, a small institution in  west-central Minnesota.

The Minnesota Department of Commerce shut down 1^st  American State Bank, in Hancock, Minn., and appointed the Federal Deposit Insurance Corp. as receiver.

The FDIC arranged for Community Development Bank FSB, of Ogama, Minn., to take over the failed bank's two branches, its $$16.3 million in deposits and its $18.2 million in assets.

The two branches will reopen as Community Development Bank locations on Monday.

The FDIC and Community Development Bank entered into a loss-sharing agreement on $11.7 million of 1st American's assets. The FDIC says such deals are designed to maximize the return on the assets by keeping them in the private sector.

1^st American was the 16^th bank to fail this year. The FDIC said the closing would cost its deposit insurance fund an estimated $3.1 million.

The Treasury Department failed to document how decisions were made regarding its involvement in a Federal Reserve loan program, and it hasn't planned for a scenario that could leave the department on the hook for billions of dollars, according to a new Government Accountability Office report released Friday.

The Term Asset-Backed Securities Loan Facility (TALF) was designed to reopen the securitization market to facilitate consumer and business lending. Managed by the Federal Reserve Bank of New York, TALF will provide up to $200 billion in loans to institutions seeking to purchase asset-backed securities and commercial mortgage-backed securities, in exchange for collateral in the form of securities, which would be forfeited if the loans are not repaid.

The Treasury has pledged $20 billion in TARP funds to purchase the TALF loans' underlying collateral if participants default. As of December, the New York had made $61.6 billion in TALF loans and received $100 million in TARP funds for the program.

The report generally gave high marks to the TALF program itself, nothing that it "appears to be contributing to measured improvements in the securitization markets."

However, the GAO concluded that TALF still poses risks.

"A return to 2008 conditions could have adverse impacts on the program, such as significantly reducing the value of TALF collateral, providing an economic incentive for borrowers to walk away from their loans, and requiring TARP funds to be used to buy TALF collateral," the report said.

But more significantly, the GAO report blasted Treasury for a lack of transparency surrounding its involvement in the program. It notes that officials were unable to provide documentation on how decisions regarding its role in TALF were made.

"As we noted in past TARP reports, Treasury has yet to develop systems to ensure the transparency and accountability for TARP activities by implementing a strong, transparent strategic framework with the appropriate oversight mechanisms," the report said.

The report urged the creation of a system to track why Treasury officials make certain decisions and how those decisions fit with the overall goals of the  government's economic stability efforts.

"Unless Treasury documents the rational for major program decisions that it made with the Federal Reserve, it cannot demonstrate accountability for meeting the goals of TALF and could unnecessarily place TARP funds at risk," the GAO wrote.

The report also said Treasury failed to develop a plan to track and report on the performance of TALF collateral. The GAO explained that because Treasury considers it unlikely that it will have to use TARP funds to purchase the collateral, it did not develop plans for that contingency.

The watchdog was especially critical of the lack of planning, noting that Treasury had time to do so, as TALF's first activity did not occur until March 2009.

In its response to the GAO, included as an appendix in the report, Assistant Secretary for Financial Stability Herbert Allison wrote that the Treasury appreciates GAO's suggestions regarding stronger documentation. "Treasury is committed to ensuring that not only TALF but TARP as a whole is administered in a way that protects the taxpayer," Allison wrote.

"Treasury will also continue to enhance its existing reporting on its investments in TALF that strikes an appropriate balance between our goal of transparency and the need to avoid compromising either the competitive positions of investors or Treasury's ability to recover funds for taxpayers," Allison added.

The Financial Crisis Inquiry Commission may issue subpoenas to secure documents and interviews, said Phil Angelides, chair of the bipartisan panel charged with determining the causes of the financial crisis that led to the bailout.

"If we want to talk to someone, we will talk to someone," Angelides said, adding that he anticipates the mere threat of a subpoena will keep the board from having to issue one. "At least at this moment, we feel we're getting good cooperation."

Angelides delivered his remarks Tuesday at an event sponsored by the left-leaning think tank New Democrat Network.

The FCIC will complete the bulk of its investigatory work by Labor Day, Angelides said. It will then start compiling its findings, which are due by Dec. 15.

Angelides, the former treasurer of the state of California, did not say when the next public hearings would occur. But he indicated they would address subprime lending, securitization, government-sponsored enterprises and shadow banking, among other subjects. He also said the panel will likely hold public forums in which academics and other experts with knowledge of the economy and financial markets will offer their insights.

Angelides defended the methodical pace of the panel, which was created in May 2009 but did not hold its first public hearings until last month.

"We're marching to a drummer of integrity and thoroughness," he said, adding that the panel's work is still relevant, even though it is addressing a crisis that came to a head 16 months ago. "People have talked about this crisis as if it was, when in fact, it still is."

In January, the panel held two high-profile hearings. First, the body questioned the heads of Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. A day later the panel questioned state and local investigators, Attorney General Eric Holder, Federal Deposit Insurance Corp. head Sheila Bair and Securities and Exchange Commission head Mary Schapiro. Observers noted that the bankers'  hearing did not generate much controversy, but Angelides, echoing earlier comments from FCIC Vice Chairman Bill Thomas, said hearings are  just the "tip of the iceberg" of the commission's work.

In addition to examining the broad forces that led to the economic meltdown, Angelides said his panel will "strip back the veil" to reveal the "actions of real people and real institutions" whose practices contributed to the crisis.

"If we unveil embarrassing facts, so be it," he said.

Angelides also noted that the panel has the authority to refer criminal matters to the Department of Justice but stressed that the FCIC has "a broader mandate than to just find... perps."

"I want to emphasize that much of what happened was not illegal," he said.

The FCIC is drawing inspiration from previous government panels such as the Warren Commission, which investigated the Kennedy assassination; the Kerner Commission, which investigated the 1967 race riots; and the 9/11 Commission, which investigated the circumstances and preparedness issues surrounding the Sept. 11 attacks, Angelides said.

The panel's most crucial task may be its role in helping to restore investors' confidence in Wall Street, so Angelides said he will make its work understandable and accessible to the general public by explaining the causes of the crisis in layman's terms and posting relevant documents online.

"There is a hunger in this country to know what the heck happened," Angelides said.

He alluded to the effect the 1929 stock market crash had on a generation of Americans who avoided Wall Street investing due to their view of stocks as risky and unreliable. "We hope in the end to contribute toward restoring faith in our financial system," Angelides said.

PNC Financial Services Group, Inc. is moving swiftly to raise new capital after reaching agreement with regulators and the Treasury Department on a plan to repay the $7.6 billion it received through the Troubled Asset Relief Program.

PNC has announced plans for a $3 million offering of common stock and a $2 billion offering of senior notes. It also has agreed to sell its global investment-servicing unit to Bank of New York Mellon.  

James E. Rohr, PNC's chairman and chief executive, said that an improving economy and a steadying financial system make this "an appropriate time for us to redeem the preferred shares held by the U.S. Treasury."

PNC does not plan to redeem the accompanying warrant it issued the government when it got the TARP money, which was partly intended to aid its government-orchestrated acquisition of National City Bank.

That warrant gives the government the right to buy about 16.9 million shares of PNC's common stock at an exercise price of $67.33 per share, until December 31, 2018. The company's stock closed Wednesday at $53.71.

PNC announced on Tuesday that it had received approval for its exit from TARP, with $3 billion share sale representing the biggest piece of that plan. On Wednesday, it said the offering would be comprised of 55.6 million shares of common stock at $54 per share. It said the closing was expected to occur on about February 8, 2010.     

As part of the exit plan, the company also agreed to sell its PNC Global Investment Servicing unit, which provides fund-processing products and other services to money managers, broker-dealers and other customers.

Bank of New York Mellon agreed to buy that business for $2.31 billion.  The transaction is currently slated to close some time in the third quarter.

PNC filed plans with the Securities and Exchange Commission today for the sale of $2 billion in senior notes, with half paying a 3.625 percent interest rate and half paying 5.125 percent.

The company said the note sale would provide additional liquidity after the TARP shares are redeemed, probably later this month.

If that redemption is completed, PNC would become the eighth bank among the 10 largest TARP recipients to cash out of the program by repaying all of the government money.

Citigroup Inc., which got $45 billion through TARP, and SunTrust Banks Inc., which got $4.9 billion, also have yet to redeem all of their preferred shares.

The Federal Deposit Insurace Corp. has ordered a New York bank to take "prompt corrective action'' to boost its capital levels or find a buyer or merger partner.

USA Bank, of Port Chester, N.Y., was put on notice Dec. 8, according to a summary of enforcement actions the FDIC released late last week.

Two other banks received similar notices in December - Horizon Bank of Bellingham, Wash., and Columbia River Bank of The Dalles, Ore. Both were seized by regulators this month, and their assets and deposits absorbed by other financial institutions.

The FDIC ordered USA Bank to submit a capital restoration plan to its New York office within 30 days. The bank was told to raise enough capital to qualify as "sufficiently capitalized'' under regulatory standards, through the sale of stock, an equity injection by existing shareholders or other means acceptable to the agency.

Failing that, the FDIC said, the bank must find a buyer or merger partner.

USA Bank had roughly $223 million in assets as of the end of September. It lost $4.07 million in the third quarter of 2009, largely because of higher provisions for loan losses, according to a Securities and Exchange Commission filing. The bank lost $118,484 in the same period of 2008.

Because of the lag in the publication of the FDIC order, USA Bank's 30-day action period has already passed. It is unclear from the bank's   public statements what steps it took.

USA Bank announced in November that it hired an investment banking firm, Laidlaw & Co., to help it find a strategic partner and secure additional capital.

USA Bank lost $8.86 million through the first nine months of 2009, compared with $1.25 million a year earlier.

Cincinnati-based First Financial Bancorp Inc. is seeking to raise $85 million through the sale of common stock.

The company, which operates First Financial Bank, N.A., received $80 million from the government's Troubled Asset Relief Program in December of 2008.  First Financial intends to use the proceeds of the offering to make its exit from the program.

The company reported a profit of $246.5 million last year--more than ten times the $23 million it earned in 2008. First Financial is hoping its strong showing will help pursuade the Treasury Department and regulators to allow the bank to repurchase the preferred stock it issued to the government as part of its participation in TARP.

First Financial warned in its prospectus that although it intends to use the net proceeds from the offering to pay back the government, there is no guarantee it will receive that approval. If regulators deny the request, it will use the proceeds for general corporate purposes.

When First Financial sold the $80 million in preferred stock to the Treasury at the end of 2008, it also issued the government a warrant to purchase 930,233 common shares.  That number decreased to 465,117 (as outlined in the securities purchase agreement between the parties) after the company sold 13.8 million common shares in a public offering this past June.

As such, First Financial does not plan to repurchase the warrant when it redeems the preferred stock.

The company said in its latest earnings report that nonperforming loans totaled $77.8 million at the end of 2009, up from $18.2 million a year earlier Over the same period, however, its total assets rose by nearly $3.3 billion, to $6.86 billion, and deposits nearly doubled, to $5.55 billion.

First Financial took over the assets and deposits of the failed Irwin Union Bank of Louisville, Ky., and Irwin Union Bank and Trust Co., of Columbus, Ind., in September. That transaction added $2.7 billion in assets and $2.1 billion in deposits.