March 2010 Archives

The Hartford Financial Services Group Inc., which was criticized for accepting TARP money because it is not a bank, announced Wednesday that it had repurchased the government's shares in the company.

The government invested $3.4 billion in the insurance company in June 2009, but the deal drew controversy because Hartford became eligible to participate in the Troubled Asset Relief Program only as a result of buying a small Florida thift.

"We are pleased to complete our plan to return the U.S. Treasury's investment in The Hartford and appreciated the opportunity to participate in (the Capital Purchase Program) and the support of the government and American taxpayers," said Liam McGee, the company's president and chief executive.

Hartford repurchased the preferred stock it issued to the government under TARP's Capital Purchase Program. The company raised the money through equity and debt offerings.

The government still holds warrants to buy roughly 52 million shares of Hartford's common stock, which can be executed at $9.79 per share. The company does not intend to repurchase the warrants from the  Treasury. The company's stock closed Wednesday at $28.42 per share.

Linus Wilson, a professor at University of Louisiana-Lafayette, valued the warrants at just over $1 billion.

Comerica Inc. announced in an SEC filing that it will not repurchase the warrants that the Treasury Department holds in the company.

Comerica,  which earlier this month repaid the government's $2.25 billion TARP investment, is the latest of a growing number of companies that are electing not to buy back warrants the government holds to purchase shares of their common stock.

Instead, the companies are allowing the government to auction their warrants, which were part of the consideration they paid for participating in the Troubled Asset Relief Program.

In many cases, those warrants can be exercised at prices below the current market value of the companies' shares.

The government holds 11,479,592 warrants that allow it to purchase Comerica stock at $29.40 per share. The company's stock closed Wednesday at $38.04. Linus Wilson, an assistant professor of finance at University of Louisiana - Lafayette whose work has been cited by the Congressional Oversight Panel, estimated the Comerica warrants are worth about $218 million.

In 2009, 31 TARP recipients who repaid their government loans chose to repurchase the government's warrants. Such a move can be expensive, but also prevents a company's existing stockholders from getting diluted by the issuance of new shares. Meanwhile, just three firms allowed the government to auction off their warrants.

But this year, the tide has turned. Since Jan. 1, there have been only two repurchases of warrants by TARP recipients, compared to four auctions.

Wilson said the trend may be shifting in the other direction because those who repurchase their warrants would likely have to raise additional capital to meet regulators' requirements, since they would already be ponying up so much equity for the warrants.

Another reason may be the release of a report by the Treasury Department earlier this year that provided further details of all the 2009 warrant transactions - including the bids banks made when they sought to repurchase.

Wilson noted that the report showed many "low ball" offers from banks when they sought to repurchase their own warrants. While a low bid can help a bank get a better deal, "banks now may think that's kind of embarrassing," Wilson said.

"It seems you're taking advantage of taxpayers, which is politically embarrassing," Wilson added. "It also says something about what they think about the stock."

And as bank stocks continue to increase in value, warrants themselves are becoming more valuable, driving up their prices and making them less of a bargain institutions considering repurchasing them.

The Treasury Department announced a new $600 million effort to help alleviate foreclosures in five states that have a disproportionate rate of residents living in areas with high levels of unemployment.

North Carolina, Ohio, Oregon, Rhode Island and South Carolina are eligible to receive the funding. They were selected because they were among the states that had the highest percentage of residents living in counties with unemployment rates exceeding 12 percent, Treasury officials said during a conference call with the reporters.

"What we're trying to do is look at areas hardest hit by the problem," said Herbert Allison, who oversees TARP at Treasury.

Monday's announcement was the second round of funding in the administration's Help for the Hardest-Hit Housing Markets program. Last month, the administration announced a plan to use $1.5 billion of TARP money to assist homeowners in states where the average home price has fallen by more than 20 percent from its peak: California, Florida, Nevada, Arizona and Michigan. Those states also lead the nation in foreclosure rates.

The funds are designed to be used by states to assist unemployed homeowners, borrowers who are underwater people who have taken out second mortgages.

Treasury officials noted the states targeted in the first round got more funding than those in the second because they are more populous. Funding is equal on a per capita basis.

The Help for the Hardest-Hit Housing Markets program provides funding to state housing finance agencies, who are tasked with developing programs that meet the federal government's requirements for the program.

The administration has said the funding can be used to launch programs to help unemployed homeowners until they secure jobs, assist underwater borrowers in negotiations with lenders to write down mortgages, pay incentives to second mortgage holders to help reduce principal; or promote alternatives to foreclosure such as short sales.

Treasury officials declined to say exactly how states included in the first round of funding will use the money since those decisions have not yet been finalized.

Some have questioned how states were selected for the most recent round of funding. Although the program is designed to address areas with high unemployment, the five states included in the program do not have the worst unemployment rates in the country.

For example, Washington D.C., Illinois, Mississippi, Alabama, and Kentucky, which are not included in the program, currently have higher unemployment rates than Ohio and Oregon, which are in the program. And aid is not solely reserved for unemployed homeowners - rather, it can go to employed residents who happen to live in states that have high concentrations of unemployment, Treasury officials told BailoutSleuth.

Treasury officials explained the decision like this: even though Illinois has a higher unemployment rate than Ohio, only 6 percent of residents there live in counties with high concentrations of unemployment, compared to 22 percent of Ohio residents.

"The impact of the housing crisis is more concentrated in some places than others," Allison said. "The (fund) is designed to provide programs tailored to the needs of each participating state."

The department also indicated that proposals that "respond to problems caused by concentrated economic distress will be particularly welcomed."

The program would allocate a maximum of $159 million to North Carolina; $172 million to Ohio; $88 million to Oregon; $43 million to Rhode Island; and $138 million to South Carolina.

Treasury officials also added that the $600 million effort is just a fraction of the sum the administration has allocated for foreclosure prevention. Last week - amid criticism of the effectiveness of its $75 million Home Affordable Modifications Program -- officials announced popular changes such as further efforts to promote principal reduction.

Treasury Assistant Secretary Alan Krueger said the program would help keep property values in affected communities from falling and prevent property crimes and other blight brought on by foreclosures.

Allison added that states would be required to develop metrics that would allow the federal government to determine whether their efforts are working. 

The Treasury Department announced plans today to sell its 7.7 billion shares of Citigroup Inc.'s common stock this year in a move that could raise tens of billions of dollars for the government.

Details about the transaction - including the timing and manner of the sale - have yet to be fully determined. The sale will not affect Treasury's additional holdings of Citigroup preferred securities and warrants.

Treasury announced in December 2009 that it would start liquidating its Citigroup common stock, but the shares soon fell below $3.25 - the rate that Treasury paid for them. The department put the sale on hiatus.

Citigroup's stock closed Monday at $4.18, giving the government's shares a market value of nearly $32.2 billion.

The federal government owns 27 percent of Citigroup, which was one of the two biggest beneficiaries of the bailout funds that went to the banking sector.

On Oct. 28, 2008, Treasury invested $25 billion in Citigroup through TARP's Capital Purchase Program. Less than a month later, it announced that Citigroup would get an additional $20 billion, plus more than $300 billion of loan guarantees, following the results of the institution's stress test.

Last September, Treasury converted the $25 billion in Citigroup preferred stock it got in the first TARP financing into common shares, at the rate of $3.25 a share.

Citigroup repaid the extra $20 billion in December.

Treasury continues to hold more than $5 billion in preferred securities that Citigroup issued in return for the loan guarantees, as well as warrants to buy common shares it got as part of the TARP investments.

The Obama administration announced changes to the much-criticized Home Affordable Modifications Program on Friday, a day after it was blasted by lawmakers at a Congressional hearing.

The revisions are aimed at increasing the number of borrowers who receive mortgage modifications through the $75 billion program, which critics say is not delivering on its promise to provide relief to 2 to 4 million borrowers. The changes are especially aimed at aiding unemployed and underwater borrowers.

"These program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own," the Treasury Department said in a statement.

According to Treasury, the changes also will increase incentives to servicers who participate in HAMP and improve opportunities for those who must transition to affordable housing as a result of failing to qualify for HAMP.

The department now is requiring all servicers to solicit HAMP participation from borrowers who have missed at least two mortgage payments and meet the program's eligibility requirements.

Since Treasury launched HAMP last February, just 170,207 permanent modifications have been completed, according to Treasury's latest figures.

The new policies are likely to increase participation in a program that critics say is not helping enough people. The department said it will gradually roll out the changes, which should all be in place by the fall.

Under the changes, the program will provide incentives to servicers who write down the principal of home loans that are worth more than 115 percent of the property's value. Borrowers would restructure underwater mortgages into Federal Housing Administration loans if the borrower is current and the lender can reduce the amount owed by at least 10 percent. After restructuring, the mortgage must be less than 115 percent of the home value.

Treasury also is increasing incentives it provides for loans extinguished through HAMP's Second Lien Program.

Unemployed borrowers will be able to have mortgage payments reduced for three to six months as they seek reemployment. Those who don't find jobs, or find jobs that pay less than their original salaries, could be evaluated for permanent modifications.

Relocation assistance payments to borrowers who use alternatives to foreclosure when vacating their homes will double. Another change is that borrowers in active bankruptcy must be considered for HAMP upon request.

The changes also include consumer protections, including a prohibition on foreclosure until a borrower has been found to be ineligible for HAMP. Servicers must stop foreclosure actions if a borrower enters a HAMP trial period based on verified income.

Lawmakers spent nearly four hours Thursday examining problems facing the Home Affordable Modifications Program, with some suggesting that the intiative has already failed.

The House Oversight Committee hearing came days after a report from the TARP Special Inspector General that highlighted the Treasury Department's struggle to make a significant dent in the number of households facing foreclosure.

 "We need to make a change," said Rep. Darrell Issa (R-Calif.), the committee's ranking member. "It is a program that, whether you voted for TARP or not, must be made to work and must be made to work dramatically better than it is."

The $75 billion program is intended to help homeowners avoid foreclosure by providing financial incentives to lenders who restructure mortgages to make payments more affordable. More than a year after Treasury launched HAMP, just 170,207 permanent modifications have been made, according to its latest figures.

Issa called Treasury's efforts to prevent foreclosures through HAMP  "a promise ... that is not being kept."

He reiterated common complaints about the program, including the number of months some homeowners have spent in trial modifications without learning whether they will ever gain permanent status. Due to delays in the program, some people may be continuing to make mortgage payments when it would be better for them to seek more affordable housing, he added.

Others on the committee chided Treasury for trying to "move the goal post." The administration has said it hopes to help up to 4 million people avert foreclosure. But Herbert Allison, who oversees TARP for the Treasury, testified that his department's goal is actually to extend up to 4 million offers for trial modifications.

SIGTARP Neil Barofsky reiterated many of the points he made in a report on the program released earlier this week, saying that "this goal is essentially meaningless." He also cited backlogs and inefficiencies within the program that are hurting its effectiveness.

Borrowers also are being treated inconsistently by mortgage servicers participating in the program, said Gene Dodaro, acting comptroller general of the Government Accountability Office.

"Treasury needs to put out metrics upon which we can measure their performance," added Mark Calabria of the libertarian Cato Institute. He also called on the Treasury Department to release a clear cost-benefit analysis of the program.

Calabria suggested that the program has done more harm than good for borrowers - a sentiment some of the committee members seemed to echo. Patrick McHenry (R-N.C.) called the program "a failure and a waste of taxpayer dollars," while Rep. Jackie Speier  (D-Calif.) said "the program doesn't work."

Rep. Elijah Cummings (D-Md.) spoke in more tempered terms, telling Allison, "I've got a feeling you've done a lot but not enough."

Allison conceded that "more work needs to be done" to avert foreclosures. "I think certainly we've seen a lot of frustration with this program since its inception," he said.

He added: "We did not fully envision the challenges that we would encounter."

Treasury has been criticized for allowing homeowners to apply for modifications by verbally stating their income without documentation. That caused trouble for servicers, who often found discrepancies between stated and actual income.

Allison said Treasury originally allowed verbal statements in an effort to enroll as many people in the program as possible, but Issa suggested it was a misguided political decision designed to make it appear as though that the program was working more effectively than it actually was.

Allison said Treasury is negotiating with other banks to offer a program similar to the one announced by Bank of America Corp. this week in which it will work to forgive some of the principal amount of sub-prime mortgages to encourage customer's participation in HAMP. The program was widely praised by committee members.

Allison also said Treasury is developing a modification program for second liens called 2MP that could also help reduce principal owed. He said that Bank of America, Citigroup Inc., JPMorgan Chase & Co., and Wells Fargo & Co. have agreed to participate. 

With the national unemployment rate still in double digits, Congress and the public are paying extra attention to executive compensation, especially in the financial services industry.

As part of the legislation that created the Troubled Asset Relief Program, federal pay czar Kenneth Feinberg is charged with overseeing the salaries of the top 25 highest-paid employees at five companies that continue to receive "extraordinary" TARP assistance.

The process works like this: The companies submit their compensation plans to Feinberg's office. He then determines whether their proposed pay for key employees is "contrary to the public interest" based on a set of pre-determined criteria.

If it is, he revises it, although the company can appeal if it wishes.

Feinberg, whose formal title is Special Master for Executive Compensation. revised proposed pay at all but one of the companies under his authority, because he concluded that they were being too generous to executives and not acting in taxpayers' best interest.

Here is a breakdown of what companies wanted, and what Feinberg ultimately allowed. Click the links within each listing for details on the total compensation packages for the company's top 25 employees.

American International Group Inc.

AIG originally proposed salaries of more than $500,000 a year for 10 employees, according to a letter from Feinberg to the company. He ultimately made the company limit salaries above that amount to just five employees. Feinberg also wrote that compensation packages needed to be reduced to levels comparable to those of similar employees in similarly positioned companies.

Due to an unresolved discussion regarding $45 million in "retention" payments to AIG employees in 2009, Feinberg determined that no additional payments would go to AIG Financial Products employees --- other than their continued cash salaries. And instead of the standard $500,000 salary, he froze their pay at 2008 levels.

AIG Financial Products was responsible for creating the credit-default swaps and other derivatives that nearly brought down the entire company in 2008. 

All total, cash payments for the top 25 employees at AIG decreased by $22.2 million, or 63 percent, compared to last year. But total direct compensation increased by $1.9 million, or 2 percent.

AIG has received $69.8 million in TARP money, as part of a broader aid package topping $180 billion.

Chrysler LLC

The automaker proposed freezing employees' cash salaries at 2009 levels, adding stock salary of up to $180,000 for some employees, and giving most employees annual long-term incentive awards of up to $340,000, also payable  in stock. Those proposals were accepted by Feinberg, and it was the only company whose proposals Feinberg felt were not excessive. 

Chrysler has received nearly $13 billion in TARP aid. 

Chrysler Financial LLC

Chrysler Financial, which is winding down its operations, requested that its salaries be paid exclusively in cash, since it would be impractical for them to be paid in stock. The company proposed increasing its salaries to 20 percent above 2009 levels based on its "successful achievement of pre-determined business objectives sooner than anticipated."

Feinberg disputed that claim, arguing that its proposed cash salaried were too high and exceeded the amount needed to retain employees during an orderly shutdown. He modified the salaries to make them consistent with the public's interest, according to his letter to the company. All total, the company's total direct compensation increased 10 percent over 2009 levels but remains below 2008 levels. Eight of the company's employees have total direct compensation exceeding $500,000.

The Treasury Department provided $1.5 billion to Chrysler Financial last January.

General Motors Co.

GM proposed increasing salaries above 2009 for most of its top 25 employees, with 16 to collect more than $500,000. Feinberg wrote in his letter that that seemed too generous, and cash salaries should be less than $500,000 except in special circumstances. As a result, only eight employees will have cash salaries in excess of $500,000, while annual cash salaries overall will decrease by 7.5 percent.

GM also proposed that some employees receive stock salary of up to $5.3 million, which Feinberg accepted. He tweaked the company's proposal for annual long-term incentive awards of up to $2 million.

GM has received more than $50 billion in TARP aid.

GMAC

GMAC proposed that employees new to the top 25 get salaries of $400,000 to $500,000, and those remaining would get either their 2009 rate or the 2009 rate plus $9,000 to replace their company cars.

Finally, the company proposed that most employees in the group get an annual long-term incentive award of up to one-third of their total 2010 compensation.

Feinberg ruled that salaries should not exceed $500,000 except for special circumstances. His decision prompted GMAC to reduce the pay of two people who would have earned more than that. He also scrapped the extra $9,000 per executive that GMAC proposed, arguing in a letter that it did not satisfy the principle that compensation "should reflect the current or prospective contributions of an employee" to the company's value.

He did not accept the proposed increases in stock salary for those in last year's group; he also found the proposed stock salary for those new to the group "excessive" and reduced them.

GMAC has received more than $16 billion in aid from the Treasury Department.

The company originally wanted to increase Chief Executive Micheal Armstrong's stock salary rate and annual long term incentive, but Feinberg determined an increase above 2009 rates in unwarranted.

The CEO won't get a cash salary this year, and other employees' cash salaries won't exceed $500,000. Stock salaries for employees new to the top 25 will be reduced to "levels more appropriate"; those who remained in the top 25 will see their stock salaries frozen.

Incentive pay will be $12.5 million for the group - reduced from the company's proposed $29.5 million.  

Overall, cash compensation is down $8.8 million or 45 percent for the group. Total direct compensation decrease by 14 percent from 2009.

The highest-paid executives at five companies that got large amounts of TARP money will have their compensation cut by an average of 15 percent this year, federal pay czar Kenneth Feinberg said Tuesday.

The decision affected 119 executives at these companies: American International Group Inc, Chrysler LLC, Chrysler Financial LLC, General Motors Corp. and GMAC Inc.

Cash salaries will be $500,000 or less for 82 percent of the executives named in the ruling, which essentially covered the 25 highest-paid employees at each company.

Feinberg's ruling included people new to the list of top earners at their companies, as well as those who were subject to last year's decisions.

Under his determinations, the majority of executive compensation will be paid in stock that must be held for the long term, and incentives that are only paid if objective performance goals are met.

AIG executives no longer have guaranteed bonuses, and pay beyond their salaries must be in the form of long-term stock.

GMAC Chief Executive Michael Carpenter will take no cash salary this year and will receive only stock; no executives at the auto and mortgage financer will receive cash salaries greater than $500,000.

Feinberg also is requesting information on executive pay exceeding $500,000 at more than 400 companies that received bailout funds through the Troubled Asset Relief program prior to Feb. 17, 2009. He hopes to identify "whether any payments were contrary to the public interest" and possibly seek reimbursements.

The following are summaries of Feinberg's compensation determinations:

          AIG

          Chrysler

          Chrysler Financial

          GM

          GMAC

Treasury Secretary Timothy Geithner defended Congress's efforts to enact financial reform, while admitting he has disagreements with the bill being pushed by Sen. Chris Dodd (D-Conn.).

Geithner, addressing an audience at the conservative American Enterprise Institute, spoke just hours before the Senate Banking Committee approved the bill on a 13-10 party line vote Monday.

The legislation now moves to the Senate. The House passed its version of financial reform last year.

Dodd's legislation would - among other things - severely curtail the Federal Reserve's bank supervisory power, restricting its supervision to bank holding companies with more than $50 billion in assets. Currently, the Fed regulates about 5,000 bank holding companies and 850 state member banks.

Geithner said the country would be better off if the Fed maintained its "broader footprint" and was allowed to continue supervising both large and small banks.

Despite those differences, Geithner praised the bill - calling the fight for reform a "just war." He urged the Senate to pass the legislation soon, arguing that it is the country's best interest to become a global leader in the field of financial reform.

"If we fail to act," Geithner said, "America will lose this opportunity to set the global agenda, to define new high standards for all financial companies, and to lead the debate in shaping a level playing field on terms that play to our strengths."

Geithner's appearance seemed to be an effort to make a bipartisan appeal for reform. The event was hosted by the AEI, which typically opposes regulation, Geithner referenced conservatives including former  president George W. Bush, former Fed chairman Alan Greenspan and Sen. Richard Shelby (R-Ala) in his speech.

Geithner also said it was important to pass reform so that banks - and their customers - would know exactly what sort of rules they are dealing with.

"Even with improving credit markets and reduced borrowing costs, when you talk to businesses across the country, they tell you that banks are lending less in part because they're not certain what new rules are coming," Geithner said. "If you delay reform, you force them to live with that continued uncertainty."

The secretary also emphasized the importance of a Consumer Finance Protection Agency and resolution authority to allow for the wind down of financial institutions that threatened the economy.

State and federal regulators closed seven banks today, including two with more than $1 billion in assets, bringing the total number of bank failures this year to 37.

At this point last year, regulators had shut down 20 banks.

The seven new closures were the most in a single day since Oct. 30, 2009, when nine banks were seized.

The largest closure of the day (see separate story) was at the single-branch Advanta Bank Corp. in Draper, Utah, located outside of Salt Lake City. The bank is an issuer of credit cards for small businesses and professionals.

The day also brought a new rash of bank closings in Georgia, which has suffered more failures than any other state in the wake of the financial crisis.

Georgia

Three banks closed in Georgia, the highest total in a single day for the state since July 24, when six were shut down. Now 35 banks have closed in Georgia since the start of 2008.

The largest closure in the state was the 10-branch Appalachian Community Bank in Ellijay, Ga. The FDIC announced it will be taken over by Community & Southern Bank of Carrollton, Ga. Last year, the bank lost $59.3 million. It had assets of $1.01 billion, and its closure will cost the FDIC insurance fund $419.3 million.

Bank of Hiawassee, in Hiawassee, Ga., also was closed today, the FDIC announced. It had assets of $377.8 million and its five branches will reopen as branches of Citizens South Bank of Gastonia, N.C.  The bank's closure will cost the insurance fund $137.7 million.

The two-branch Century Security Bank in Duluth, Ga. was also shut down, the FDIC announced, and it will reopen as a branch of Bank of Upson, based in Thomaston, Ga. The bank has lost money every year since it opened in 2006, including a $5.2 million loss last year. It will cost the insurance fund $29.9 million

Other closures include:

·        Four-branch First Lowndes Bank in Fort Deposit, Ala., which will cost the insurance fund $38.3 million (FDIC announcement)

·        Single-branch State Bank of Aurora in Aurora, Minn., which will cost the insurance fund $4.2 million (FDIC announcement).

·        Single-branch American National Bank in Parma, Ohio, which will cost the insurance fund $17.1 million (FDIC announcement).

American National, which will become a branch of National Bank and Trust Company in Wilmington, Ohio, lost $10.6 million last year. The Office of the Comptroller of Currency closed the bank because it "had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," the agency said in a statement.

It also reported that the bank's capital was so depleted that there was no way it could become capitalized against without government aid.

State and federal regulators closed Advanta Bank Corp., a large Utah-based bank that provided credit cards to small businesses, wiping out an institution that had more than $1.6 billion in assets but had begun its slide more than a year ago.

FDIC was unable to find another bank to take over Advanta, which lost $451.3 million last year, so it will mail depositors checks for their insured funds on Monday. Customers will no longer have access to their accounts, the FDIC said in its announcement.

The bank had $1.6 billion in assets and $1.5 billion in deposits, including $247,000 in uninsured funds. The bank's failure is expected to cost the Deposit Insurance Fund $635.6 billion.

The closure was the knockout punch for a bank that had a long history of bruises over the last year.

In May 2009, it announced a plan to shut down credit card accounts. In July, the FDIC announced that Advanta had agreed to settle charges that its card operation had engaged in unfair and deceptive practices.

The bank was assessed a $150,000 civil penalty and agreed to pay $36 million in restitution to customers whose interests rates were arbitrarily increased or who claimed they were deceived by cash back offers.

 In November, its parent company, Advanta Corp., filed for Chapter 11 bankruptcy protection. Though the bank was not included in the bankruptcy, Advanta acknowledged that the bank was "below regulatory capital requirements and over time Advanta Bank Corp. may be turned over to an FDIC receivership."

"The economic debacle over the last two years devastated Advanta's small business customers and Advanta itself," chairman and CEO Dennis Alter said at the time.

In November 2009, Advanta Corp. was delisted from NASDAQ, and in January it announced plans to liquidate its assets.

Scrutiny of the Home Affordable Refinance Program is heating up in Washington, as lawmakers continue to question the mortgage refinancing program and say it is failing to meet expectations.

The House Oversight Committee announced today that it will hold a hearing to examine the program Thursday.

Special Inspector General for TARP Neil Barofsky is scheduled to release his report on the program at the meeting. Herbert Allison, who oversees the Troubled Asset Relief Program for the Treasury Department, also is expected to testify.

The $75 billion HAMP program, which can use up to $50 billion of TARP funds, provides incentive payments to lenders who can help responsible borrowers modify their mortgages.

Earlier this year, committee chair Edolphus "Ed" Towns (D-N.Y.) requested data on the program from the Treasury Department as part of an investigation into HAMP.

Towns has criticized the program for failing to require that lenders give homeowners an explanation for a modification denial and for failing to establish an appeals process.

Lawmakers and consumer activists have sparred with the administration over what, exactly, constitutes success for the program. In its February report, Treasury indicated there were than 1 million active HAMP modifications, and the administration touts that figure when it discusses the program's success.

But critics point out that overwhelming majority of those modifications -- 835,194 -- are only trial efforts that have not been made permanent. They say the program is under-performing and is nowhere near its goal of reaching 3 to 4 million modifications.

In a letter to Treasury Secretary Timothy Geithner that was acquired by ABC News, Republican Reps. Darrell Issa (Calif.) and Jim Jordan (Ohio) said the administration "continues to widely overstate" HAMP's impact.

"Rather than acknowledge the program's failure, Treasury is trying to confuse the American people by counting HAMP's higher number of temporary modifications -- fewer than one-third of which are successfully converting to permanent ones -- toward the goal," they wrote.

House Oversight Committee Chair Edolphus Towns (D-NY) is calling on Federal Reserve Board Chairman Ben Bernanke to release documents related to the controversial purchase of 37,000 shares of Goldman Sachs Group Inc. stock by a Fed insider.

At the height of the financial crisis in December 2008, Stephen Friedman - who at the time chaired the board of directors at the Federal Reserve Bank of New York - bought the stock.

The transaction came just a month after the New York Fed ordered American International Group Inc. to pay its credit default swap counterparties the full amount owed, and three months before the $13 billion payment to Goldman was made public.

Goldman became a bank holding company in September 2008, which made the Fed its regulator. Friedman requested a waiver to continue serving on the Fed board, since he also served on Goldman's board. The waiver was granted months later, but in the interim he continued working for the Fed.

The fact that such a favorable deal was orchestrated for Goldman has itself been controversial. But Friedman's purchase of the stock so soon after the New York Fed made the favorable deal for Goldman, before that deal became public, and all while he worked as its regulator, continues to be a hot subject.

In the letter to Bernanke, Towns and Rep. Stephen Lynch (D-Mass.) said Friedman owning 46,000 shares in the company, and buying 37,000 more at the same time he was charged with regulating it, was clearly a conflict of interest

"Mr. Friedman's dual role at the New York Fed and Goldman, his purchase of the

Goldman stock in December 2008, and the Federal Reserve's waiver of its conflict of interest policy after the fact, raise serious questions about the integrity of the Fed's operations," the two wrote.

The Fed's general counsel has previously said Friedman did not violate any Fed statutes or policies. Friedman resigned from his post in May 2009 and said in his resignation letter that he was in compliance with rules but was leaving to avoid a distraction for the Fed.

"We've received the letter and will be responding to it," said Fed spokeswoman Barbara Hagenbaugh.

Towns maintains that Fed policy prohibited Friedman from owning Goldman shares and he should not have worked for the Fed while awaiting a waiver.

"At a time when Mr. Friedman was prohibited from owning Goldman Sachs stock, he bought over a million dollars more of it without notifying the Federal Reserve," Towns said in a statement. "This raises serious questions about transparency, fairness and the appearance of a cozy relationship between Wall Street and the government."

Lynch  said it is concerning that a regulator was invested in one of the very companies he was charged with regulating, especially at time when the Fed was putting taxpayer money into AIG for the benefit of Goldman.

The two congressmen are requesting that Bernanke release all documentation related to Friedman's purchase of Goldman stock as well as all documents surrounding the Fed's decision to ultimately grant Friedman a waiver in January 2009.

The estimated cost to taxpayers of the Troubled Asset Relief Program has climbed $10 billion to $109 billion, according to the latest report by the Congressional Budget Office.

In January, CBO estimated the program would cost $99 billion, but the agency has revised that figure.

The shift was due primarily to an increase in the anticipated cost of assistance to American International Group Inc., which was revised from $9 billion to $36 billion -- the result of a higher likelihood of default on its preferred stock.

But that change was partially offset by a decrease in the estimated cost of aid to the auto industry, which fell from $47 billion to $34 billion as the "companies have emerged from bankruptcy proceedings and demonstrated some measure of financial stability and an improved business outlook," CBO wrote.

The overall price estimate is based on all TARP transactions, including investments, grants, and loans. The bulk of the cost is tied to assistance provided to AIG and the auto industry. The report also estimates that $344 billion of TARP funds are outstanding or will be disbursed before the program expires in October.

The agency expects the government to make a $2 billion profit on the Capital Purchase Program, in which the government invested $205 billion in 707 banks.

It also expects to turn a $5 billion profit on the additional $45 billion in assistance to Citigroup Inc. and Bank of America Corp. through the Targeted Investment Program and Asset Guarantee Program.

CBO also estimates that the proposed Community Development Capital Initiative, which would invest $1 billion in "community development financial institutions," will cost the federal government less than $500 million.

CBO's estimate is $18 billion less than estimates from the Office of Management and Budget due to differing projections on participation in the Home Affordable Modification Program. The offices also differ on how they valued the government's subsidies to AIG.

The Treasury Department purchased $40 billion in preferred stock from AIG and also created a $30 billion preferred line of credit for the company. The stock is outstanding and the company has not paid dividends due on the investment.

The federal government fined Wachovia Bank $160 million for failing to prevent Mexican drug cartels from using the bank to launder money, the Office of the Comptroller of Currency announced today.

Two days after Sen. Chris Dodd (D-Conn.) introduced legislation that would restrict the Federal Reserve's regulatory authority, Fed Chairman Ben Bernanke came to Congress to persuade lawmakers to preserve its strength.

Dodd's bill would severely curtail the Fed's bank supervisory power. Currently, the Fed regulates about 5,000 bank holding companies and 850 state member banks. Under Dodd's bill, the Fed would only have supervisory authority on bank holding companies with more than $50 billion in assets. The others would be overseen by different regulators.

Bernanke, testifying before the House Financial Services Committee, argued that the Fed is "uniquely suited" to regulate large, complex institutions. "No other agency can, or is likely to be able to, replicate the breadth and depth of relevant expertise that the Federal Reserve brings to the supervision of large, complex banking organizations and the identification and analysis of systemic risks," Bernanke said.

He also defended the Fed amid new reports indicating that the agency was unaware of dubious accounting methods occurring at the now-defunct Lehman Brothers Holdings Inc., even when its own staff had almost unfettered access to the company's books following the collapse of Bear Stearns & Co. "We only had a couple of people in the company, who's primary objective was to make sure we got paid back the money we were lending," Bernanke said. "We were not charged with supervising the company."

Bernanke dismissed suggestions from some lawmakers that the Fed has an inherent conflict of interest due to its dual roles setting monetary policy and regulating banks. Rep. Brad Sherman (D-Calif.) said the Fed may be tempted to make monetary policies favorable to failing banks if it feared a bank under its regulatory authority was in jeopardy.

"I don't think that's a very realistic scenario," Bernanke said.

The Hartford Financial Services Group Inc. - which has drawn controversy for taking TARP money - has announced a pair of stock offerings to raise funds that will allow it to fully exit the program.

The company got $3.4 billion last June through the Troubled Asset Relief Program, after buying a small savings bank in Florida to qualify for the federal aid.

Hartford filed with the Securities and Exchange Commission to sell $1.45 billion of common stock and $500 million of mandatory convertible stock.

"We appreciate the critical role the government and the American taxpayers have played in stabilizing the financial markets and we are pleased to announce a plan to repurchase Treasury's investment in fewer than 10 months," said Liam McGee, Hartford's president and chief executive.

The company said it does not intend to repurchase the Treasury Department's 52,093,973 warrants that allow it to purchase Hartford stock at $9.79 per share. The company's stock closed Tuesday at $27.26 per share.

Hartford would have been ineligible for TARP money without its purchase of Federal Trust Bank, according to a scathing report from the Special Inspector General for TARP.

A SIGTARP audit released in December 2009 found that 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.

The stated purpose of the $700 billion TARP program was to inject capital into banks and other financial services companies to help shore up their balance sheets and stimulate lending.

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

Treasury officials concede that the primary purpose of Hartford's acquisition of Federal Trust was to gain access to TARP funds, according to the audit. Less than 6 percent of Hartford's TARP money was allocated to Federal Trust, the very institution that made it eligible in the first place.

Lincoln National Corp., another big insurance and financial services company, used a similar maneuver to secure TARP money.

A former loan officer at a bank that got federal TARP aid has been banned from the industry after forging loan paperwork that caused his company to lose nearly half a million dollars.  

According to the order from the Federal Reserve, Adam Benarroch, a former assistant vice president of Midwest Bank and Trust in Elmwood Park, Ill., forged documents related to at least 14 loans in 2003 and 2004. 

His goal was to increase his bonus, which was tied to loan volume, according to the Fed. 

"Over a period of eight months (Benarroch) altered the terms of at least 14 loans totaling $8.6 million, issued two unauthorized commitments letters totaling $3.71 million and fabricated three legal memoranda in his attempts to rush the funding of a $3.15 million loan," wrote administrative law judge C. Richard Miserendino. 

The 26-branch bank is a wholly-owned subsidiary of Midwest Banc Holdings, Inc. and is one of the largest independent banks in the Chicago area. In December 2008, it received an $84.8 million investment from the Treasury Department through the Troubled Asset Relief Program.

Although the charges against Benarroch predate the company's  involvement in TARP, they nevertheless raise questions about its internal controls and fraud detection systems.

Benarroch, 38, needed approval from one of two committees for loans exceeding $75,000. He forged signatures and fabricated documents to make it appear as if unapproved loans were actually approved, or to change the terms of existing loans without permission to make them less favorable for the bank and more favorable to customers, according to the Fed. 

His actions caused the bank to lose $350,000 in interest and fees, and it was forced to write off an additional $109,000 in principal, according to the Fed.  

Benarroch was initially banned from banking Oct. 29, 2009. He appealed that decision, which was upheld by the Federal Reserve Board of Governors last week.  

Benarroch's actions "exhibit both personal dishonesty and a willful and continuing disregard for the safety or soundness of Midwest," Miserendino wrote last year.  

John Pelling, a spokesman for the bank, declined to say whether the bank would pursue legal action against Benarroch. 

Besides traffic tickets, Benarroch does not have any criminal or civil cases against him in Cook County, Ill. - where the bank is based - or two other Illinois counties where he worked. There also are no criminal or civil cases against him in federal court. 

According to a press release, Benarroch, was named assistant vice president for commercial lending in 2003, and he was tasked with working with the banks' commercial clients in McHenry County and Lake County, Ill. 
 

Benarroch previously worked in commercial lending and credit management at three Illinois banks before joining Midwest, according to the release.  

Documents from the Fed's case against Benarroch in an administrative court detail the extent of his alleged scam. His first reported foray into fraud occurred shortly after he was hired, on Dec. 5, 2003, when he forged a vice president's signature to lower the interest rate and extend the maturity of a customer's $405,000 loan. That effort cost the bank $2,700 in lost interest. 

From there, Benarroch's actions became increasingly bold and cost the bank larger sums. He would regularly forge multiple executives' signatures to make it appear as if lending committees had approved loans when they had not. Some of his forgeries cost the bank more than six-figures. 

Benarroch was caught May 12, 2004, when he fabricated documents purporting to be memos from the bank's outside attorneys concerning a $1.35 million loan. 

He was suspended that day, and bank executives began investigating his loan portfolio. They discovered 14 loan files containing either forged signatures or other discrepancies. Less than two weeks after he raised the bank's suspicions, Benarroch was fired.  

According to administrative records, Benarroch does not deny the allegations. "He admitted that he falsified legal memoranda to expedite loan closing, and does not deny that he intentionally and deliberately issued the unauthorized commitment letters that exposed the Bank to heightened risk," Miserendino wrote. Instead, he contended the case against him was jeopardizing his subsequent employment at another bank, and he pleaded for leniency. 

Benarroch has an unlisted telephone number, so he could not be reached by phone. He responded to a Facebook message from BailoutSleuth but did not answer questions about the case.  

Pelling did not answer questions how Benarroch was able to repeatedly exploit the bank without the institution's knowledge. He also did not answer whether any new safeguards are in place to prevent similar fraud in the future.  

This marks the second time this month Midwest Bank and Trust has found itself at the center of controversy.  

Earlier this month, BailoutSleuth reported that the Treasury Department had agreed to a deal to exchange its preferred stock shares in the bank for a new class of stocks that could result in millions of dollars of losses for taxpayers. 

The bank lost $231 million in 2009 and lost $151.1 million in 2008.

The Federal Deposit Insurance Corp. has announced five more loan auctions, covering approximately $195 million in assets from three failed banks.

All of the assets have the dubious distinction of originating with banks that were so far gone when regulators intervened that no other institutions were willing to take them over.

Three of the auctions feature assets from the failed Barnes Banking Co. of Kaysville, Utah, which was closed by the Utah Department of Financial Institutions on January 15. The Federal Reserve Board had issued a prompt corrective action orderd against Barnes just four days earlier.

The FDIC created the Deposit Insurance National Bank of Kaysville to resolve the bank's business after it failed to find a buyer.  The three auctions--all with April 6, 2010 bid dates--consist of approximately $68.5 million in various performing and non-performing loans.

The assets are being marketed by the advisory firm of Garnet Capital Advisors, which will also conduct the sales.

The largest of the Barnes-related auctions consists of $46.7 million in performing and nonperforming commercial and consumer loans, divided into three groups.  The first pool consists of 248 commmercial and industrial loans totaling nearly $26 million. According to the sales announcement, 73 percent of the pool is performing.

The second pool comprises 34 Small Business Association 504 Loans amounting to nearly $17.7 million. The sale announcement said 92 percent of that pool is performing.  The third and smallest pool contains 520 Consumer Loans with a balance of $3.12 million.  Seventy-four percent of that pool is classified as performing.

The next-largest Barnes auction consists of 86 performing and nonperforming agricultural loans.  As might be expected, the 86 Loans are performing at a very low level:  about 15 percent.  The current outstanding balance is about $20.5 million.

The final and smallest Barnes auction includes nearly $1.3 million in credit card accounts.  The 1,578 accounts are performing at 93 percent. The FDIC said all of those accounts will be bid in a single pool.

The fourth FDIC auction features assets from the failed Silverton Bank of Atlanta, which was shuttered by the Office of the Comptroller of the Currency on May 1, 2009.  Silverton was a commercial bank that did not deal directly with consumers but provided services to its client banks.

The FDIC created the Silverton Bridge Bank N.A. to help client banks transition their accounts to other lenders with as little disruption as possible.

The FDIC's loan sales Web page states only that the Silverton portfolio contains about 110,000 credit card accounts with a balance of  $118 million.  The Silverton sale also has an April 6 bid date, but the assets are being marketed by First Annapolis Capital Inc.

The FDIC offered no information on the ratio of performing to nonperforming loans.  First Annapolis said on its Web site that approximately 53 percent of the portfolio are consumer credit cards and approximately 47 percent are business cards  business.  It also claims that the average credit bureau score is about 736.

The fifth and final FDIC auction is a mix of commercial and industrial loans and consumer loans from the failed Citizens State Bank, of New Baltimore, Mich., which was shut down by the Michigan Office of Financial and Insurance Regulation on Dec. 18.

The FDIC subsequently formed the Deposit Insurance National Bank of New Baltimore when it failed to find a purchaser for the institution.  The loans will be bid in two pools: the first consists of 52 commercial and industrial loans in Michigan totaling $5.7 million; the second consists of 94 consumer loans in Michigan with a balance of about $736,000.

The sale, marketed by Eastdil Secured, has a March 23, 2010 bid date.  The FDIC offered no information on the ratio of performing to nonperforming loans. Nor did Eastdil Secured on the public sections of its Web site.

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

Sen. Chris Dodd (D-Conn.) revealed his long-anticipated financial reform bill Monday, which he said would provide a better regulatory framework than the existing system that has grown "hopelessly inadequate" in the wake of the financial crisis.

The bill, Dodd said, would prevent a future bailout by providing a mechanism for the government to shut down failing institutions that are threatening the economy through either bankruptcy or resolution

"Never again should the American taxpayer be asked to write a check because of an implicit guarantee that the federal government will bailout a company when it collapses if it threatens the stability of the economy as a whole," Dodd said.

The bill would also discourage institutions from becoming "too big to fail" through more stringent capital requirements and improved supervisory protections.

The bill creates a consumer watchdog agency would be housed within the Federal Reserve. Dodd said the agency would be wholly independent, with its own budget and a presidentially-appointed director. It also establishes a systemic risk council tasked with monitoring the financial system for activities that could contribute to a future crisis.

Other provisions promote whistle blowing at the Securities and Exchange Commission, enhance accountability for credit rating agencies and make the head of the Federal Reserve Bank of New York a presidentially-appointed position.

Though Dodd introduced the bill alone and did not receive the bipartisan support he had hoped for, he emphasized contributions made by Republican Sens. Richard Shelby of Alabama, Bob Corker of Tennessee and Judd Gregg of New Hampshire.

Markup of the bill is scheduled to begin next week.

The former head of a failed bank was arrested Monday and charged with 10 federal counts including allegations that he tried to fraudulently obtain millions through the TARP program, according to a statement from federal prosecutors.

Federal officials say that Charles Antonucci, former president and chief executive of The Park Avenue Bank, gave false statements as he sought more than $11 million in aid for his bank through the Troubled Asset Relief Program.

Antonucci is the first defendant to be charged with trying to defraud the program.  He also faces a slew of other charges related to his allege use of his position at the bank to enrich himself.

Antonucci paid $2 million bond Monday and surrendered his travel documents; he is not to leave the New York area.

Among the charges Antonucci faces are bank bribery, embezzlement of bank funds and fraud. He faces a maximum of 260 years in prison.

"Lying to financial regulators is the economic equivalent of obstruction of justice," said U.S. Attorney Preet Bhara in a statement.

Regulators closed Park Avenue Bank on Friday, and the Federal Deposit Insurance Corp. arranged for it to be taken over by Valley National Bank. The four-branch bank, which had $494.5 million in deposits and $520.1 million in assets, primarily served small businesses.

Antonucci was president and CEO from June 2004 to October 2009, and he also served on the bank's board of directors.

Antonucci is accused of "self dealing" by extending credit to customers to whom he had financial ties; granting overdraft credit to a customer in exchange for the use of his plane; and using the bank to pay expenses on properties he owned.

Prosecutors also say Antonucci used a complicated "round trip" transaction to try to defraud bank regulators into believing he had invested $6.5 million of his own money into the bank to try to increase its capital position and make it eligible for TARP funds. In actually, he had taken those very funds from the bank in the first place.

First, the bank loaned funds to entities tied to Antonucci. Then, those entities transferred the funds to Antonucci. Finally, he invested that money back into the bank - in exchange for common stock representing a 52 percent controlling interest in the bank's holding company.

As he sought $11 million in TARP funds from the Treasury Department, he "falsely represented that he had made a substantial, personal capital contribution to The Park Avenue Bank," prosecutors said.

Upon learning that the FDIC would not recommend his bank for TARP, he withdrew his application voluntarily, saying in a press release that the bank was strong and wanted to avoid the stigma of accepting government money.

"This case should stand as a stark warning to would-be wrongdoers that if you attempt to profit criminally from this historic program, SIGTARP and its law enforcement partners will work tirelessly to ensure that you will be caught, you will be charged, and you will be brought to justice," said Special Inspector General for TARP Neil Barofsky in a statement.

Additionally, an unnamed co-conspirator allegedly told pastors of Calvary Springs Chapel in Coral Springs, Fla. that if they invested $103,940 in the purchase of a bond, he would borrow four times that amount in foreign markets and pay the pastors the full maturity of the bond, $604,848, within weeks.

The co-conspirator simply had the pastors put the money into an account owned Antonucci, prosecutors said. They never received any money bank, and Antonucci and his co-conspirator split the pastors' money, prosecutors said.

The Bancorp Inc., a publicly traded holding company for Bancorp Bank, has redeemed all of the preferred stock it issued to the U.S. government under the Troubled Asset Relief Program

The company, based in Wilmington, Del., returned $45.22 million in TARP funds and paid more than $2 million in attendant dividends.

Bancorp is a commercial bank with more than $2 billion in assets.

The Bancorp received assistance from the Treasury Department on Dec. 12, 2008, in return for preferred stock and a warrant entitling the government to buy up to 1,960,405 shares of common stock at an exercise price of $3.46 a share.

The redemption of preferred stock places Bancorp in a position to repurchase the warrant without further approvals, if it can agree with the Treasury on a price.

Although the company's press release and concomitant Securities and Exchange Commission filing make no mention of the fate of the warrant, the Treasury's potential allotment of common shares would be considerably smaller than that allowed by the original warrant.

The reduction is due to Bancorp's successful offering of common equity last August. That offering raised gross proceeds of $57.5 million and enabled the company to redeem its TARP stock once regulators gave their approval.

According an SEC filing on Jan. 27, Bancorp absorbed a fourth quarter loss of $965,000, compared to a far more significant loss of $41.4 million in the same period of 2008.

Bancorp's chief executive, Betsy Z. Cohen, attributed the loss in the most recent quarter to a pretax securities impairment charge of $2.2 million and additional loan loss provisions of $4 million.

Bancorp had an annual profit of $342,000 last year, compared with a net loss of $42.6 million for 2008. The significant improvement was partially attributable to a 32 percent decline in contruction loans between 2008 and 2009.

Regulators closed three banks in the Eastern United States on Friday, one in New York, one in Florida and one in Louisiana.

The institutions that failed were Park Avenue Bank in New York City, Old Southern Bank in Orlando and Statewide Bank in Covington, La. In all three cases, the Federal Deposit Insurance Corp. was appointed receiver, and arranged for other banks to take over the branches, deposits and assets.

Valley National Bank acquired Park Avenue's four branches, along with its $494.5 million in deposits and $520.1 million in assets. Valley National, which has headquarters in Wayne, N.J., took over another failed New York bank on Thursday.

Valley National agreed to pay a 0.15 percent premium for Park Avenue's deposits. It entered into a loss-sharing deal with the FDIC on $379.8 million of the failed bank's assets.

New York regulators and the FDIC issued cease-and-desist orders against Park Avenue last month. The orders required it to take immediate action to correct what state officials called "apparent violations of federal laws and regulations."

According to news accounts, Park Avenue and real estate investor David Lichtenstein, one of its major shareholders, have been targeted by lawsuits alleging a number of questionable financial moves.

Centennial Bank, based in Conway Ark., took over the remains of Old Southern, which had been operating under an FDIC cease-and-desist order since September.

The acquisition included seven branches, $319.7 million in deposits and $315.6 million in assets. It paid a 1 percent premium for the deposit, and the FDIC will share in the losses on $282.7 million of the assets.

Home Bank, of Lafayette, La., took over Statewide Bank's six branches, $208.8 million in deposits and $243.2 million in assets. Home Bank and the FDIC entered into a loss-sharing deal on $163.5 million of those assets.

Statewide also was the subject of an FDIC cease-and-desist order, issued last April.

The three banks brought the total number of failures so far this year to 30. The FDIC said the closings would cost its deposit insurance fund an estimated $183.4 million.

Regulators seized a New York bank on Thursday, in a rare departure from the usual carefully coordinated Friday night closings.

The New York State Banking Department took over LibertyPointe Bank and appointed the Federal Deposit Insurance Corp. as receiver. The FDIC arranged for Valley National Bank to take over LibertyPointe's three branches, its $209.5 million in deposits and its $209.7 million in assets.

Valley National paid a 0.5 percent premium for the deposits, and entered into a loss-sharing deal with the government on $181.5 million of the assets.

LibertyPointe was based in New York City and was controlled by real estate developer Shaya Boymelgreen. It had long been on the FDIC's list of troubled institutions.

Regulators issued a cease-and-desist order against the bank last July, citing a high concentration of commercial real estate loans, excessive delinquencies and inadequate provisions for loan losses.

Last October, the bank was given 30 days to raise additional capital to strengthen its financial position.

The FDIC estimated that LibertyPointe's failure would cost its deposit insurance fund $24.8 million.

LibertyPointe was the 27th bank to fail so far this year.

The Federal Reserve announced an enforcement action Wednesday against TARP recipient Idaho Bancorp, marking the second bailed out bank this week to come under the agency's gun.  

Idaho Bancorp is the holding company for Boise-based Idaho Banking Company, which has four branches in the state. The holding company received $6.9 million through the Troubled Asset Relief Program in January 2009. It has not paid back any of that sum, although it has paid $124,300 in dividends. 

The bank, which lost $11.2 million in 2009 and lost $1.6 million in 2008, signed an agreement with the Fed that requires it to: 

-- Submit plans to strengthen the board's oversight

-- Conduct an assessment of bank staff

-- Submit a plan to reduce CRE concentrations

-- Submit plans to improve its standing on various loans

-- Submit plans for maintaining adequate capital and liquidity

"The harsh economic times have affected many local businesses and local residents," said Jim Latta, the bank's president and chief executive, in a statement. "Consequently the bank's performance has been directly affected and we welcome the help and assistance of the State of Idaho and the Federal Reserve." 

He added that the bank had already started to implement some of the requirements in the agreement. 

BailoutSleuth reported earlier this week on an agreement the agency signed with Heritage Oaks Bancorp, which was awarded $21 million in TARP funds.  

The Fed also took action against three other banks that are not TARP recipients , including Olmsted Holding Corporation in Minnesota, Horizon Bank in Florida and Ravalli County Bank and its holding company, Ravalli County Bankshares Inc., in Montana. 
 

The Treasury Department announced Wednesday it had sold its warrants in TARP recipient Washington Federal Inc. for $15.4 million.  

The deal is expected to close Monday, when Treasury's 1,707,456 warrants will sell for $9.15 each.

Washington Federal  has 151 bank branches in Arizona, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and Washington. It received $200 million in taxpayer funds through the Troubled Asset Relief Program in November 2008. It paid back the money in May 2009.

The warrants are exercisable at $17.57 per share. Trading closed Wednesday at $19.86 per share. 
This week, the Treasury also is auctioning warrants in Signature Bank and Texas Capital Bancshares Inc.

Bank of America Corp.  will stop charging overdraft fees on debit card transactions and will instead block a sale if a customer lacks adequate funds, the company announced Wednesday. 

Bank of America now joins Citigroup Inc. as the second big bank to take the step. Customers will still have the option of linking a checking account to another account, such as saving account, so that they can access funds even when their accounts are low.  

The move puts Bank of America well beyond recent Federal Reserve requirements that pose some restrictions on overdraft fees.  

"Our customers have been clear that they want to know if a purchase is going to overdraw their account," said Susan Faulkner, Bank of America's deposits and card product executive, in a statement. "Our solution is simple, clear and helps customers control their finances by reducing the possibility of over-extending themselves at the point of sale with a debit card." 

Bank of America will implement the new policy in mid-June for new customers and mid-August for existing customers, company spokesman Don Vecchiarello said.  

"Their needs are changing," Vecchiarello said of the bank's 59 million customers. They've told us they want control and clarity." 

Customers will not be able to make debit card transactions if the cost exceeds their account balance. They will, however, be able to make ATM withdrawals if they overdrawn, but the machine will flash a warning letting customers know they are about to overdraft their account and be assessed a $35 fee. Checks as well as recurring debit charges, such as automatic bill paying, will still be charged overdraft fees.  

The move was praised by consumer advocate groups, which have long criticized overdraft fees as high-interest, short-term loans.  

A recent study by the Center for Responsible Lending found that large banks charge an average of $34 per debit overdraft charge. As recently as 2004, most banks would automatically deny debit and ATM transactions when a customer did not have enough money in his account. Now, customers pay $24 billion in overdraft fees annually, according to the group. 

Citibank had already blocked debit and ATM transactions that would  overdraft an accounts. With Bank of America following suit, other banks could soon face pressure to do the same or risk losing their customers.  

"It says to people that there is a place you can go where you will get a better service or product," said Kathleen Day, a spokesperson for the Center for Responsible Lending.  

Treasury Secretary Timothy Geithner also praised Bank of America's decision during a Congressional hearing Wednesday. He said he hopes other banks will "follow the lead of their competitors." 

CRL urged the regulators to come up with more strict rules that would limit the number and amount of overdraft fees on debit and ATM transactions. 

Recent Federal Reserve rules require banks to get customers' permission to enroll in overdraft protection programs, but CRL contends that banks may use scare tactics to persuade customers to do that.

City National Corp. has repaid the final $200 million it received from the government through the Troubled Asset Relief Program, and two other banks are preparing to do the same.

City National got $400 million in public aid in November 2008. The Los Angeles-based company, which has $21.1 billion in assets, sought last spring to pay back all of the money. But regulators required it to retire the obligation in two installments.

City National paid off the first $200 million in December, redeeming preferred stock it issued to government in exchange for aid. The Treasury Department still holds warrants to buy common stock in City National, which also were part of the consideration.

City National has remained well-capitalized and profitable despite higher provisions for loan losses  to account for trouble in the residential and commercial real estate markets.

In December, it acquired the banking operations of Imperial Capital Bank, another California institution, after it was shut down by regulators.

Two other TARP recipients - Comerica Inc. and Susquehanna Bancshares Inc. announced stock offerings intended partly to raise enough money to repay the government and exit the program.

Comerica got $2.25 billion in taxpayer funds in November 2008. The Dallas-based company said it hoped to raise $800 million through a sale of common stock.

The offering, coupled with Comerica's existing cash, would allow the company to redeem all 2.25 million shares of preferred stock the Treasury Department holds, the bank announced.

Tidelands Bancshares Inc., based in Mount Pleasant, S.C., has filed plans with the Securities and Exchange Commission to raise $35 million through an offering of common stock.

The company, which operates Tidelands Bank, was the recipient of $14.4 million from the government's Troubled Asset Relief Program in December 2008.

Unlike most stock offerings from banks and holding companies still participating in TARP, Tidelands' prospectus makes no mention of using the proceeds to repay the federal aid.

Instead, Tidelands intends to improve its regulatory capital position, invest in the bank and "retain the remainder of any proceeds at Tidelands Bancshares for general corporate purposes."  

The company is seemingly a poor candidate to exit TARP in the near future, as it clearly needs to improve its capital position.  Tidelands had a difficult 2009, announcing a net loss of nearly $10.3 million for the year, more than double its 2008 deficit.

Much of the difference is traceable to the company's increasing loan loss provisions, which totaled $14.7 million last year and $4.7 million the previous year.

Tidewaters' troubled loan portfolio caught the attention of both the South Carolina banking department and the Federal Deposit Insurance Corp. According to the prospectus for the stock offering, Tidelands entered into an informal memorandum of understanding with both parties on November 16.

The company is required to submit a capital plan, reduce and improve adverse assets, decrease its concentration of commercial real estate loans, and develop plans and procedures to improve liquidity.  Tidelands must also provide quarterly status updates to both regulatory bodies.

Robert "Chip" Coffee, chief executive of Tidelands, characterized the particulars of the memorandum as "mild" and said that it would have no direct impact on the bank's customers or its daily operations. The prospectus, however, more pointedly notes that "failure to comply with the terms of the memorandum could result in significant enforcement actions against us of increasing severity, up to and including a regulatory takeover of our bank subsidiary."

On Monday, only three days after submitting the prospectus for the stock offering, Tidelands filed the definitive proxy statement for its April 12 shareholders' meeting. That documen makes no mention of the memorandum of understanding, although it does speak extensively about the company's need to raise its capital levels and address other shortcomings critiqued by regulators.

The proxy filing also proposes an amendment to the company's articles of incorpation, which must be approved by holders of two-thirds of the outstanding common shares.  That amendment would increase the number of authorized shares of the Company's common stock from 10 million to 75 million.

Although the filing mentions the need to raise capital as an important element of the increase in authorized shares, the company once again makes no direct mention of redeeming the preferred stock it issued the government in exchange for TARP aid.

Tidelands' stock closed Monday at $3.85 a share.

Heritage Oaks Bancorp, which received $21 million in TARP funds last spring, was hit by an enforcement action from the Federal Reserve last month, the board announced Monday. 

Heritage Oaks Bancorp is a holding company for the 15-branch Heritage Oaks Bank, which serves the San Luis Obispo County, Calif. region 

The Fed agreement requires the company to: 

      Not pay dividends without the Fed's permission.

      Not incur debt without the Fed's permission.

      Submit a plan for maintaining proper levels of capital.

      Submit a plan that details expected sources and uses of cash.

      Submit progress reports on compliance with the agreement.

The enforcement action did not come as a surprise. In November - less than 8 months after getting the TARP aid - the company disclosed in SEC filings that it expected to get slapped with enforcement action and greater scrutiny from regulators.  

TARP was intended as a source of funding for healthy banks and was not meant to prop up failing institutions. Heritage Oaks has not repaid the government's TARP investment but has paid $685,000 in dividends on the preferred stock it issued to the Treasury. 

The bank had assets of $881.3 million at the close of 2009. It lost $4.7 million last year. 

Following the announcement of the Fed's enforcement action, the company's stock fell 4.05 percent, closing the day at $4.26 per share. 

Sheila Bair, the head of the Federal Deposit Insurance Corp., endorsed a "more holistic approach to regulation" Monday, saying the government needs to stop propping up "too big to fail" institutions, start plugging regulatory gaps and institute greater consumer protections. 

In her prepared remarks to the National Association for Business Economics, Bair emphasized the trouble that regulators have unwinding large, non-bank "behemoths without creating grave disruption in our financial system"

She advocated for a pre-funded mechanism, similar to the FDIC's ability to take receivership of banks, that would allow the government to quickly sort through claims against them while protecting taxpayers.

"Let me be clear - this would not be another bailout mechanism," Bair said. "Shareholders and creditors would bear the losses, not the public. But the process would be orderly and help prevent a catastrophic collapse of other firms."

Bair pushed for the creation of a "systemic risk council" that would promote collaboration between various regulatory agencies so that risky activity does not fall in between jurisdictional gaps.

She also backed consumer protections, emphasizing that they would not seek to achieve "some social or political objective" but would instead put an end to "asymmetric information" - such as borrowers who don't understand sub-prime loans - that prevent markets from operating efficiently.

 "In this light, I think there is a strong case to be made that basic consumer protections help markets function better by reducing information gaps between lenders and borrowers," she said.

She said some companies may be "exploiting this information gap" at the expense of companies that seek legitimate business.

"Let us recognize that consumer abuses were one of the root causes of the financial crisis and that regulatory reform legislation should squarely address this problem," Bair said. 
 
 

The Treasury Department this week will conduct warrant auctions for three financial firms that have repaid their Troubled Asset Relief Program aid, the agency announced Monday.

Once the auctions are complete, Treasury will no longer have any stake in the companies, all of which repaid their government capital last spring.

Up for auction is:

      -- 1,707,456 shares of Washington Federal Inc., exercisable at $17.57  per share. Its shares were trading at $19.42 at 10:30 a.m. Eastern  Monday.

      -- 595,829 shares of Signature Bank, exercisable at $30.21 per share.  Its shares were trading at $38.97.

      -- 758,086 shares of Texas Capital Bancshares Inc., exercisable at $14.84 per share.  Its shares were trading at $17.23.

The minimum bid per warrant is $5.00 for Washington Federal, $16.00 for Signature Bank and $6.50 for Texas Capital.

The auctions, to be run by Deutsche Bank Securities Inc., will be held on Tuesday for Washington Federal, on Wednesday for Signature Bank and on Thursday for Texas Capital.

This is the second round of warrant auctions Treasury has conducted this month. Last week, Treasury sold two sets of Bank of America Corp. warrants for $1.54 billion -- 36 percent higher than the value estimated by the Congressional Oversight Panel.

Under TARP, Washington Federal received $200 million in taxpayer money, Signature Bank got $120 million and Texas Capital got $75 million.

State and federal regulators seized four more banks Friday, bringing the number of failures so far this year to 26.

At the same point last year, the toll stood at 17 banks. However, the pace of closings accelerated as the year went on, and the total number of failures for 2009 climbed to 140.

The biggest bank to go under this week was Sun American Bank, in Boca Raton, Fla. The Florida Office of Financial Regulation closed Sun American and appointed the Federal Deposit Insurance Corp. as receiver.

The FDIC arranged for First-Citizens Bank & Trust Co., of Raleigh, N.C., to take over the failed bank's 12 branches, its $443.5 million in deposits and $535.7 million in assets.

The FDIC and First-Citizens entered into a loss-sharing agreement on $433 million of those assets. The Sun American deal marked the fourth time in the past eight months that First-Citizens has acquired the remains of a failed bank.

The other banks shut down by regulators Friday were Bank of Illinois, in Normal, Ill.; Centennial Bank, in Ogden, Utah; and Waterfield Bank, in Germantown, Md.

The Illinois Department of Financial Professional Regulation closed Bank of Illinois and appointed the FDIC as receiver. The FDIC stuck a deal with Heartland Bank and Trust, of Bloomington, Ill., to take over its two branches, $198.5 million in deposits and $211.7 in assets.

Heartland agreed to pay a premium of 3.61 percent for the deposits. The FDIC and Heartland will share losses on $166.6 million of Bank of Illinois' assets.

The FDIC was unable to find a buyer for Centennial Bank, which was closed by the Utah Department of Financial Institutions. As a result, it will simply pay out the deposits to customers.

Centennial Bank had $205.1 million in deposits and $215.2 million in assets. The FDIC estimated that $1.8 million of those deposits were not covered by its deposit insurance fund, which protects accounts up to $250,000.

The FDIC also was unable to find a buyer for Waterfield Bank. It created a new, temporary institution, Waterfield Bank FA, to give customers time to access their accounts and move their money to other institutions.

Waterfield took deposits from customers over the Internet, and from 38 affinity groups. At the time of its closing by the Office of Thrift Supervision, it had one branch,  $156.4 million in deposits and $155.6 million in assets.

The temporary bank will remain open until April 5.

The FDIC said this week's four closings would cost its deposit insurance fund an estimated $304.8 million.

Regulators closed 140 banks last year.

Wintrust Financial Corp., a December 2008 TARP recipient and a diversified financial holding company, filed a preliminary prospectus this week covering the sale of millions of shares of new stock.

Wintrust said proceeds from the intended sale would be used for "general corporate purposes," which may or may not include the redemption of some or all of the preferred stock it issued to the U.S. government in return for $250 million in public aid.

The company initially filed to sell 4.5 million shares of its common stock, with additional shares available to underwriters to cover possible over-allotments. On Thursday, it announced that it had increased the offering to 5.8 million shares, priced at $33.25 a share. Wintrust expects $182.9 million in net proceeds.

Wintrust got $250 million through TARP's Capital Purchase Program on Dec. 19, 2008.  It has paid more than $11.3 million in dividends to the government on the preferred shares, but has yet to redeem any of them, or any of the warrants to buy common stock that also were included in the TARP deal.

The Lake Forest, Illinois-based company has 15 community bank subsidiaries throughout the Midwest.  It also controls several insurance-related businesses, mortgage companies, investment advisory services, investment management firms and an information technology services firm.

Wintrust fared well in 2009, with annual net income of $73.1 million.  It finished the year on a strong note, with a fourth-quarter profit of $28.2 million.

Edward J. Wehmer, president and chief executive, also noted that the company made significant progress in cleaning up its balance sheet.

"Wintrust reduced its non-performing loans by 43% during the fourth quarter to a level below where it stood a year ago," he said in a press release.

The preliminary prospectus for the stock offering evinces uncertainty as to the final disposition of proceeds.  Enhanced capital levels, the company says, will allow it "to pursue investments for growth and acquisitions," or repurchase some or all of the preferreds stock held by the Treasury (which would require regulatory approvals).

A third option is that unforeseen circumstances could force the company to apply the proceeds in some other manner.

Bank of America Merrill Lynch and RBC Capital Markets Corp. are acting as joint book-running managers for the share sale.  The offering is expected to close on March 9, 2010.

The Department of Justice announced has reached a $6.1 million settlement with a pair of American International Group Inc. subsidiaries accused of discriminating against black borrowers. 

The settlement was the result of a complaint filed in the U.S. District Court in Delaware under the Fair Housing and Equal Credit Opportunity Acts. It alleged that AIG Federal Savings Bank and Wilmington Finance Inc. - both wholly owned AIG subsidiaries - charged black customers higher fees on wholesale loans.

The Treasury has committed $69.8 billion of taxpayer dollars to AIG through the Troubled Asset Relief Program, and has disbursed $45 billion of that amount. The company has another $110 billion available from the Federal Reserve.

"Discriminatory practices by lenders, brokers, and other players in the mortgage market contributed to our nation's housing crisis and economic meltdown," Thomas Perez, assistant attorney general who heads the Justice Department's Civil Rights Division, said in a statement. "Lenders who looked the other way and ignored the discriminatory practices of brokers must be held accountable."

The complaint accused AIG FSB and WFI of contracting with third-party mortgage brokers to obtain loan applications but failing to prevent their discriminatory practices. According to the complaint, AIG FSB and WFI's black borrowers paid broker fees one quarter to three quarters of a percent higher than whites from July 2003 to May 2006 in Atlanta, Baltimore, Birmingham, Cincinnati, Chicago, Cleveland, Detroit, Hartford, Kansas City, Las Vegas, Memphis, Nassau County, New York City, Orlando, Philadelphia, Phoenix, Portland, St. Louis and Tampa. The complaint called the disparity "statistically significant."

 "The higher total broker fees charged to black borrowers are a result of WFI and AIG FSB's policy and practice of allowing unsupervised and subjective discretion by brokers in the setting of direct fees, and cannot be fully explained by factors unrelated to race that WFGI and AIG FSB claim were taken into account," the complaint stated.

This case was referred to the Justice Department by the Office of Thrift Supervision in 2007.

Justice officials said the settlement, announced Thursday, was the first time a lender had been held responsible for not monitoring brokers.

The settlement money will be paid to black customers who were charged higher broker fees than comparable white customers. At least $1 million of the settlement will fund consumer financial education efforts.

Neither of the two companies are in the wholesale home mortgage lending business, but will have to abide by nonracial standards for broker fees if they re-enter, according to the settlement.

At a Congressional Oversight Panel hearing Thursday, panelists tried find out why Treasury Department officials initially determined that Citigroup Inc. was healthy enough to participate in TARP in October 2008 - only to decide a few weeks later it needed another round of emergency funding. 

The Treasury Department will earn about $1.54 billion from the sale of its warrants in Bank of America Corp. 

The price represents a better-than-expected deal for the department, which has previously been criticized for selling warrants below their value. The sale amount is 36 percent higher than the estimated value listed in a Congressional Oversight Panel report last.

Bank of America issued the warrants to the Treasury in connection with the $45 billion in public money it received through the Troubled Asset Relief Program.

The warrants were auctioned Wednesday through a modified Dutch account run by Deutsche Bank Securities Inc. The sales are expected to close March 9.

 "These proceeds provide an additional return to the American taxpayer from Treasury's investment in the Company beyond the dividend payments it received on the related preferred stock," the agency said in a statement.

The 150,4375,940 "A"warrants will sell for $8.35 per warrant, while the 121,792,790 "B" warrants will sell for $2.55 per warrant.

The "A" warrants were the result of Treasury's $20 billion Targeted Investment Program investment, while the "B" warrants were the result of Treasury's $25 billion Capital Purchase program investment.

The "A" warrants have an exercise price of $13.30, while the "B" warrants have an exercise price of $30.79. Bank of America's stock closed Wednesday at $16.37 per share.

Bank of American exited TARP in December. When the sale is complete, Treasury will be entirely divested from the bank.

The Treasury Department has agreed to exchange its preferred stock in Midwest Banc Holdings Inc. for a new class of shares, in a deal that could help the bank raise new capital but also could produce big losses for taxpayers.

The Treasury got preferred stock in the Illinois-based company in return for an $84.8 million investment through the Troubled Asset Relief Program in December 2008. A Securities and Exchange Commission filing shows that the government agreed last month to exchange that stock for new "mandatorily convertible preferred stock'' that will in turn be replaced with common stock.

Under the plan, which BailoutSleuth previously wrote about in December, the Treasury's investment would convert to 47.1 million common shares in seven years, or if the company raises at least $125 million in new equity and meets other conditions.

Midwest Banc Holdings' stock closed Wednesday at 35 cents, which means the current value of the 47.1 million common shares the government would receive is $16.5 million. That is 80 percent less than the amount that the bank received in TARP money.

Midwest Banc Holdings completed a separate share exchange in January with private holders of its depository shares.

If the company completes its financial restructuring and its stock price rises, the gap between the value of the Treasury's common shares and its original investment in the bank would likely narrow.

Midwest Banc Holdings has roughly $3.6 billion in assets and is one of the biggest independent banking companies in the Chicago area. It posted a loss of $242.7 million for 2009, largely reflecting problems in its real-estate lending portfolio. The company lost $158.3 million the previous year.

Midwest Banc Holdings said provisions for loan losses totaled $167.7 million last year, with $119.7 million of that coming in the fourth quarter.

The bank has said in SEC filings that it expects the Federal Reserve Bank of Chicago will require it to enter into a formal supervisory agreement aimed at improving its financial condition.

Wells Fargo & Co.'s chairman and chief executive received $21.3 million in total compensation last year, more than double the $8.77 million he collected in 2008.

The executive, John G. Stumpf, got $5.6 million in salary and $13.1 million in stock awards, according to the company's proxy filing for its annual shareholders' meeting. Wells Fargo said more than 80 percent of Stumpf's salary was paid in stock rather than cash, under a "salary shares'' mechanism the bank devised in response to restrictions imposed on Wells Fargo by its participation in the Troubled Asset Relief Program.

Wells Fargo received $25 billion in public investment through TARP in October 2008, partly to help with its acquisition of struggling Wachovia Corp. It repaid the money last December.

At least three other Wells Fargo executives received more than $10 million each in total compensation.

Howard I. Atkins, senior executive vice president and chief financial officer, got $11.6 million in total compensation, including $3.34 million in salary and $6.81 million in stock awards. He also received stock options the company valued at $1.3 million.

Atkins' total compensation was $4.95 million in 2008.

David M. Carroll, senior executive vice president for wealth management, brokerage and retirement services, was paid $14.3 million last year. Carroll joined Wells Fargo's executive team when it acquired Wachovia, his previous employer. He was paid $700,000 in salary in 2009, as well as "non-equity incentive compensation" of $10.9 million and options the company valued at $2.52 million.

Mark C. Oman, senior executive vice president for home and consumer finance, collected $12.7 million in total compensation for 2009. His take included $3.87 million in salary and $7.07 million in stock awards. Oman's total compensation was $3.58 million in 2008.

Wells Fargo had profits of $7.99 billion last year, up from $2.37 billion in 2008, when it posted a $3 billion loss in the final quarter. It said in a press release announcing the results that its earnings for 2009 were reduced by its participation in TARP.

Its stock closed Wednesday at $28.20 a share, up from $10.44 a year earlier. The company's shares hit a low of $7.80 on March 5, 2009.

Wells Fargo's proxy filing reported that 13 members of its board of directors received total compensation of more than $300,000 each last year -- roughly half in cash and the rest in stock awards and options.

The Federal Reserve has taken enforcement action against Northwest Community Bancorp, holding company of Shoreline Bank. 

In its Feb. 16 agreement, the company agreed to a series of provisions designed to help the three-branch bank improve its financial standing, including that it: 

--Not pay dividends without the Fed's permission.

--Not issue debt with the Fed's permission.

--Submit a statement of its planned sources and use of cash.

--Submit progress reports detailing steps it is taking to comply with the agreement.

The bank, established in Shoreline, Wash., in 1999, lost $9.9 million last year and lost $3.7 million in 2008. 

In December, the Washington Department of Financial Institutions and FDIC issued a consent order instructing the bank to, among other things, increase its Tier 1 capital and risk-based capital ratio. 
 
 

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

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

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

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

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

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

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

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

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

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

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

The Treasury Department announced today that it will auction its warrants in Bank of America Corp. this week, following the bank's exit from TARP in December.

Once the sales are complete, Treasury will be completely divested from the bank.

 "The proceeds of these sales will provide an additional return to the American taxpayer from Treasury's investment in the company beyond the dividend payments it received on the related preferred stock," the department said in a statement.

The warrants will be offered Wednesday through a modified Dutch account run by Deutsche Bank Securities Inc.

Treasury will offer nearly 150,4375,940 "A" warrants and 121,792,790 "B" warrants. Treasury holds two sets of warrants in Bank of America because the bank received TARP money through two different programs -- $25 billion through the Capital Purchase Program and $20 billion through the Targeted Investment Program.

The "A" warrants came from the TIP aid, and have an exercise price of $13.30. The "B" warrants, from the CPP program, have an exercise price of $30.79. 

Bank of America's stock closed Monday at $16.71 a share.

The minimum bid for the "A" warrants is $7 per warrant, and the minimum bid for the "B" warrants is $1.50 per warrant.

Last month, Treasury announced forthcoming warrant sales for Washington Federal Inc., Texas Capital Bancshares Inc. and Signature Bank. 

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 made an additional $2.9 billion from 31 other banks that repurchased their warrants without auctions. 

Southwest Bancorp Inc., the holding company for Stillwater National Bank and Trust Co. and the recipient of  $70 million in TARP money, appears to be plotting a strategy to exit the Treasury Department program. 

Southwest said in a preliminary proxy statement for its annual meeting in April that it will ask shareholders to vote on whether to significantly increase the number of authorized shares of common stock.

According to the proxy statement, Southwest's board of directors unanimously adopted a resolution to double the authorized common stock from 20 million to 40 million shares.

The company said the sale of additional shares would raise capital for future opportunities the board deemed advisable. Not least among these prospects, it said, is the "voluntary repayment of the $70 million in Preferred Securities sold in December 2008 to the U.S. Treasury Department under its Capital Purchase Program."

Other potential uses for the proceeds of a stock offering include supporting internal growth, increasing the capital levels of Southwest's subsidiary banks, financing acquisitions and serving other corporate purposes.

Southwest Bancorp had net income of $8.8 million last year, down 40 percent from the previous year. The company ended 2009 with $3.1 billion in assets.

Approval of the amendment to double the company's authorized common stock would require the assent of investors holding a majority of the outstanding shares. The injection of such a large number of new shares into the market could have deleterious effects upon the rights of existing stockholders, such as dilutions in both earnings per share and percentage of voting power.

Stillwater National Bank and Trust -- Southwest's largest subsidiary -- entered into a material definitive agreement with the Office of the Comptroller of the Currency on Jan. 27.

The agreement, based on findings of the OCC from a 2009 on-site examination, requires Stillwater to take corrective actions relating to multiple aspects of its loan portfolio.  Stillwater is also required to submit a three-year capital plan and present quarterly reports to the OCC until it achieves full compliance with the agreement.

Stillwater also has "informal commitments to the Federal Reserve Bank of Kansas City" such as providing prior notice to the Fed if it declares or pays dividends, even on the preferred stock issued to the Treasury under TARP.

Southwest announced last week that its board of directors had decided not to declare a first quarter dividend "in view of current economic conditions.''

Southwest also will submit a capital plan to the Fed and must obtain approval from the same for any additional borrowings at the holding company level.  

If market sentiment is any indicator, Southwest may well be able to raise new capital and exit TARP. The company's stock has risen roughly 16 percent since late January, when the company announced its earnings and said that it would tighten its loan portfolio and practices to comply with  the OCC agreement.