Sandy Spring Bancorp Inc., the parent company of Maryland's Sandy Spring Bank, has repaid half of the $83 million in taxpayer money it received through the Troubled Asset Relief Program.
The company recently announced that it had turned a $5.1 million profit for the second quarter, compared to a $1.5 million loss a year earlier, and had received the go-head from the Treasury Department to return half of its TARP aid.
Sandy Spring sold more than $83 million in preferred stock to the Treasury through TARP's Capital Purchase Program. Since accepting that money in December 2008, it has since paid almost $5 million in dividends to the U.S. government.
Sandy Spring has shown signs of improving financial health in the first six months of 2010. Net income available to common stockholders amounted to $4.4 million during that period, compared with a net loss of $465,000 for the same span in 2009.
The Olney, Md.-based company's non-performing assets fell for the third consecutive quarter, and total assets have risen about 2 percent over the past year.
Daniel J. Schrider, Sandy Spring's president and chief executive officer, was restrained but optimistic regarding the company's financials.
He pointed to the company's successful common stock offering in the first quarter of 2010 as the vehicle that made the partial TARP redemption possible. He also expressed hope that continued negotiations with the Treasury will "secure their approval for repayment of the remaining balance in the coming months."
Although the company's announcement did not list an expected repayment date, Treasury said in a transaction summary that the company retired $41.5 million of its preferred stock on July 21.
Sandy Springs's release did not mention the warrants for common stock that it also issued the government in the TARP deal. It noted in the prospectus for the stock offering that it had not decided whether it would seek to repurchase the warrants or let Treasury sell them at auction.
The biggest bank to fail was Crescent Bank and Trust Co., of Jasper, Ga., which had just over $1 billion in assets. The Federal Deposit Insurance Corp., as receiver, arranged for Renasant Bank, of Tupelo, Miss., to take over Crescent's 11 branches, its $965.7 million in deposits and virtually all of its assets.
This week's closings boosted the toll so far this year to 103, compared with 64 for the same period of 2009.
The other banks seized Friday were:
n Sterling Bank, of Lantana, Fla., which had $407.9 million in assets and $372.4 million in deposits.
n Home Valley Bank, of Cave Junction, Ore., with $251.8 million in assets and $229.6 million in deposits.
n SouthwestUSA Bank, of Las Vegas, which had $214 million in assets and $186.7 million in assets.
n Williamsburg First National Bank, of Kingstree, S.C., which had $139.3 million in assets and $134.3 million in deposits.
n Community Security Bank, in New Prague, Minn., with $108 million in assets and $99.7 million in deposits.
n Thunder Bank, of Sylvan Grove, Kan., with $32.6 million in assets and $28.5 million in deposits.
IberiaBank, based in Lafayette, La, took over Sterling's six branches, along with its deposits and assets. It entered into a loss-sharing deal with the FDIC on $244.3 million of the failed bank's assets.
The Federal Reserve said in a June enforcement order that Sterling was "severely undercapitalized,'' and told the bank to either raise additional funds or find a buyer. Crescent Bank and Trust also had been given 30 days to solve its financial problems or face closure.
South Valley Bank & Trust Co., of Klamath Falls, Ore., bought Home Valley's five branches and its assets and deposits. The FDIC agreed to share in any losses on $211.6 million of the assets.
Plaza Bank, of Irvine, Calif., acquired SouthwestUSA's lone branch, its deposits and $137.3 million of its assets. The FDIC will share in any losses on $111.3 million of those assets, and will retain another $49.4 of the closed bank's assets for later disposition.
First Citizens Bank and Trust Co., of Columbia, S.C. took over Williamsburg First National's five branches and all of its deposits and assets. It entered into a loss-sharing deal on $64.4 million of the assets.
Roundbank, of Waseca, Minn., absorbed Community Security Bank, while Bennington State Bank, of Salina, Kan., took over Thunder Bank.
The FDIC said the seven closings would cost its deposit insurance fund an estimated $431 million.
That's not to say TARP will come to end - the Treasury Department will likely spend years collecting from the companies that have yet to repay their government aid.
BailoutSleuth examined the roster of companies that accepted money through TARP's Capital Purchase Program - the bank bailout - to determine which of its more than 700 participants owe the most.
Through the end of June, 82 banks -- including 8 of the 10 with the largest government investments -- had repaid some or all their preferred shares. But the program still has $58 billion outstanding, according to Treasury's latest transactions summary.
Below are 10 banks and holding companies that have the largest obligations to taxpayers.
10. Synovus Financial Corp.; holding company for 30 banks
$967.9 million outstanding
Synovus is the holding company for 30 different banks based in Alabama, Florida, Georgia, South Carolina and Tennessee. Its largest, Synovus Bank, has more than 300 branches across the south, although the company is in the process of consolidating its charters.
The company received its TARP aid in December 2008 and has yet to pay any of it back. Synovus raised $1 billion from private investors this spring, although that funding will not immediately be used to retire the TARP debt.
In May 2009, Synovus' then-president and chief operating officer, Fred Green III, left the company unexpectedly. He was later replaced by Kessel D. Stelling Jr. Last month, CEO Richard Anthony took an indefinite leave of absence to combat what the company said was a blood vessel disorder. Stelling became acting CEO.
9. Huntington Bancshares; holding company for The Hunting National Bank
$1.4 billion outstanding
The bank, based in Columbus, Ohio, has 832 branches across the country. Huntington received $1.4 billion in government investment in November 2008, and it has yet to redeem any of the preferred stock it issued to the Treasury in that deal.
Standard & Poor's recently upgraded its outlook on the company to positive from negative, after the company reported its first quarterly profit in two years.
8. Zions Bancorp; holding company for Zions First National Bank and others
$1.4 billion outstanding
Zions Bancorp is the holding company for eight different banks based in the west, the largest of which are the 148-branch Zions First National Bank, the 114-branch California Bank & Trust and the 97-branch Amegy Bank N.A.
The company hasn't repaid any of the $1.4 billion it received through TARP in November 2008. The Salt Lake Tribune reported that the company has raised $615 million in new capital since mid-May. "We are preparing ourselves for an eventual repayment of TARP, and so that's one of the potential uses of the money," James Abbott, head of investor relations for the company, told the newspaper.
7. Marshall & Ilsley; holding company for M&I Marshall and Ilsley Bank
$1.7 billion outstanding
Four banks are under the Marshall & Ilsley umbrella, including Milwaukee's M&I Marshall and Ilsley Bank, which has 370 branches. The holding company received $1.7 billion in taxpayer aid in November 2008 but hasn't paid any of it back. The bank, with branches in Arizona, Florida, Indiana, Kansas Minnesota, Missouri and Wisconsin, recently extended a moratorium on home foreclosures.
6. CIT Group Inc.
$2.3 billion outstanding
Taxpayers should not expect to see any of this money again. CIT filed for bankruptcy Nov. 1, 2009, and is the largest of four TARP financial institutions to fail. Treasury's investment in CIT is now valued at zero.
CIT has become a flashpoint in the TARP debate, since Treasury initially insisted that only health banks would receive taxpayer assistance -- yet CIT went bust less than a year after getting billions in aid. Although the results of bankruptcy proceeds may give taxpayers a chance at partial recovery, don't hold your breath.
"Treasury expects to lose its entire investment in CIT," Treasury Secretary Geithner said earlier this year.
5. KeyCorp; holding company for KeyBank N.A.
$2.5 billion outstanding
The bank has yet to repay any of the aid it received in November 2008. With more than 1,000 branches in 15 states, this institution - along with Synovus Financial Corp and Regions Financial Corp. -- may become buyout candidates as merger-and-acqusition activitiy returns to the banking sector, Reuters reported.
4. Fifth Third Bancorp; holding company for Fifth Third Bank
$3.4 billion outstanding
Fifth Third has not redeemed any of the preferred stock that it sold to the government on New Year's Eve 2008. The Cincinnati-based bank has more than 1,300 branches in 12 states. Fifth Third -- along with Huntington and KeyCorp -- could be a target of Japanese bank Sumitomo Mitsui Financial Group, which is seeking a stake in a U.S. bank, Bloomberg recently reported.
3. Regions Financial Corp.; holding company for Regions Bank
$3.5 billion outstanding
Regions Bank has more than 1,800 branches in 16 states. It got $3.5 billion loan in TARP money in November 2008 and hasn't paid any of that back.
The company's former CEO Dowd Ritter -- who retired April 1 -- was named the second "least valuable" leader of a financial institution by Bloomberg Markets Magazine for earning $9.67 million in 2009, while the company lost more than $6.6 billion from 2008 to 2009. KeyCorp's Henry Meyer II got the top title.
2. SunTrust; holding company for SunTrust Bank
$4.9 billion outstanding
Georgia' largest bank has more than 1,700 branches in 11 states, plus Washington, D.C. It received a pair of capital injections via TARP, taking in $3.5 billion in November 2008 and additional $1.35 billion the following month. It has not repaid any of the government's investment.
Last week SunTrust sold $17 billion in managed assets held by a subsidiary to Pittsburgh's Federated Investors. TheStreet.com is speculating that UK's Barclays may make a bid for SunTrust, which is struggling due to its exposure to residential real estate in Florida, a state that has been hit hard by a wave of foreclosures.
1. Citigroup; holding company for Citibank
$14.5 billion outstanding
The TARP recipient with the largest outstanding balance, Citigroup ran into trouble largely because of it exposure to collateralized debt obligations, which once were viewed as relatively safe investments. Backed by home loans - and in some cases sub-prime home loans - their value plummeted once the housing bubble burst in 2008.
Citigroup received $25 billion in Treasury's first wave of Capital Purchase Program investments in October 2008. Less than two months later, it got a controversial second bailout of $20 billion through another TARP vehicle, the Targeted Investment Program (Bank of America was the only other TIP recipient).
In December 2009, Citigroup repaid all $20 billion of its TIP money. As for the remaining $25 billion, Treasury converted the Citigroup preferred stock it received for that money into 7.7 billion shares of common stock, giving the government a 27 percent ownership stake in the company.
In May, Treasury sold a portion of the shares for $6.2 billion, and in June another sale yielded $4.3 billion. The agency said today it has given Morgan Stanley, its sales agent, the authority to sell another 1.5 billion shares. If the brokerage completes all of those sales, Treasury would have 3.6 billion shares remaining.
Citigroup's stock is currently trading for around $4 a share.
TARP pay czar Kenneth Feinberg cited 17 financial firms for making "ill-advised" payments to top employees soon after accepting taxpayer aid and is asking them to adopt new policies that would make it easier for them to restructure executive pay.
Feinberg, however, did not find that any of the payments were contrary to the "public interest" or request that they be reimbursed - which he could have.
Feinberg has proposed that compensation committees at those companies be given greater flexibility in the event of a crisis so that they aren't hamstrung by guarantees and can more easily come into compliance with new rules regarding executive pay.
"Under the proposal, if the company's board of directors has identified that the firm is in a crisis situation, the compensation committee would have the authority to restructure, reduce or cancel pending payments to executives -- and this authority would supersede any rights and entitlements executives have in normal circumstances," the Treasury Department explained in a statement.
The 17 firms named by Feinberg were: American Express Co.; American International Group Inc; Bank of America Corp.; Boston Private Financial Holdings Inc.; Capital One Financial Corp.; CIT Group Inc.; Citigroup Inc.; JPMorgan Chase & Co.; M&T Bank Corp.; Morgan Stanley; Regions Financial Corp.; SunTrust Banks, Inc.; Bank of New York Mellon Corp.; Goldman Sachs Group Inc.; PNC Financial Services Group, Inc.; U.S. Bancorp; and Wells Fargo & Co.
Feinberg's study examined compensation of the top 25 executives at each of 419 TARP recipients who accepted funds in late 2008 and early 2009. The period covered pay until Feb. 17, 2009, when new rules for compensation at TARP firms were created.
Feinberg said the payments by those 17 companies to their executives during the period were "ill-advised." Some of those companies paid more than $10 million to individual employees during a period of just five months - after they had received taxpayer money through TARP, Feinberg said. The size of the payments, as well as the lack of clear justification for them, led to the classification.
"These 17 exercised poor judgment... they shouldn't have made the payments," Feinberg said. He declined to elaborate on compensation practices at specific companies.
Feinberg's report found that of $2.3 billion in pay that was analyzed, $1.7 billion fell into categories that were later subject to heightened regulation, including cash bonuses, retention awards, stock grants, golden parachutes or tax gross-ups (in which companies pick up a portion of an executive's tax obligations).
The 17 companies named by Feinberg paid $1.6 billion of that $1.7 billion in special compensation.
The results of Feinberg's analysis suggest that some companies may have been giving major perks to their executives at a time when they were dependent on taxpayer aid for survival. He noted, however, that 11 of the 17 firms named in his report have fully repaid their TARP aid.
The study of 419 firms found that 57 percent of the companies didn't have any executives who earned more than $500,000 annually. Another 28 percent had five or fewer executives in that category.
Feinberg had the authority to try to negotiate a reimbursement of some pay if he found it was not in the public's interest. However, he didn't reach that conclusion for any of the payments, noting that the compensation was within the rules at the time.
The payments were not found to be contrary to the "public interest" because the companies didn't break the law, and the government wasn't offering guidance on executive compensation at the time.
The voluntary compensation "break" provision Feinberg is touting would help address the common argument made by companies that they are obligated by contracts to make certain payments to executives, he said.
"I have not heard much pushback from these companies on this request," Feinberg said, adding that he is "hopeful" they will sign on to it within a few weeks. None have formally agreed to or rejected the proposal, he said. He encouraged all 419 companies to adopt the measure.
Friday's action was likely Feinberg's final act with TARP. He is now moving on to administer the fund that BP Plc established to pay claims made by workers and residents affected by the Gulf of Mexico oil spill.
The Treasury Department announced Friday that it would sell another 1.5 billion shares of common stock in Citigroup Inc. as it continues its effort to recoup its investment in the company.
The new round of sales -- the third in recent months -- would cut Treasury's remaining stake in Citigroup to 3.6 billion shares.
Citigroup received $25 billion in taxpayer aid through the Troubled Asset Relief Program in October 2008. It issued preferred stock to the Treasury in return for that investment, made through TARP's Capital Purchase Program.
Citigroup later got an additional $20 billion through TARP's Targeted Investment Program. It paid back that money last December.
Treasury converted its Citigroup preferred stock into 7.7 billion shares of common stock, at a converstion price of $3.25 a share. That gave it a 34 percent stake in the company.
In May, Treasury sold 1.5 billion Citigroup shares for nearly $6.2 billion; in June, it sold 1.1 billion more for just over $4.3 billion.
The current round of sales will end Sept. 30 -- even if all 1.5 billion shares haven't been sold -- because of a blackout period set by Citigroup ahead of its third quarter earnings release.
Eight banks are creeping closer
to granting the Treasury Department the
right to appoint directors to their boards, through their failure to make
quarterly dividend payments on their TARP aid, the program's Special Inspector General revealed
Wednesday.
Banks that got taxpayer money
through the Troubled Asset Relief Program were required to issue preferred
stock or other securities to the Treasury and to make regular dividend
payments.
If a TARP recipient misses six quarterly payments in a row, Treasury gets the right to appoint two directors to
its board.
In his latest quarterly report, TARP Special Inspector General Neil Barofsky said that Saigon National Bank in Westminster, Calif., is the first -- and so far only -- only bank to miss six consecutive dividend payments.
The report said Treasury currently is working on a strategy for appointing representatives to Saigon's board.
Barofsky's report noted that eight other institutions have now missed
five consecutive payments, totaling $25 million. Thus, they are dangerously
close to hitting the threshold for Treasury intervention.
The banks that missed five payments - and the size of the government's TARP investment - are:
-- Anchor BanCorp Wisconsin Inc., holding company for AnchorBank, $110 million
-- Blue Valley Ban Corp., holding company for Bank of Blue Valley, $21.8 million
-- Commonwealth Business Bank, $7.7 million
-- Lone Star Bank, $3.1 million.
-- OneUnited Bank, $12.1 million
-- Pacific Capital Bank, $180.6 million
-- Seacoast Banking Corporation of Florida/Seacoast National Bank, $50 million
-- United American Bank, $8.7 million
A total of 105 banks that got
government money through TARP's Capital Purchase Program have missed at least
one quarterly payment. Those missed payments total $159.8 million.
The report also reiterated
criticisms of TARP issued by Barofsky's office over the past quarter, including
concerns about the abrupt closing of auto dealerships by Chrysler LLC and General Motors Corp., and the process by which
Treasury has been selling stock warrants it received as part of its bank investments.
And the study issued the
special inspector general's most stinging criticism yet of the Home Affordable
Modification Program, a $50 billion effort to help homeowners avoid foreclosure
through mortgage modifications.
Barofsky and other watchdogs
have hammered the department over its refusal to state how many homeowners it
expects to assist through HAMP modifications.
"Without such clearly defined
standards, positive comments regarding the progress or success of HAMP are
simply not credible, and the growing public suspicion that the program is an
outright failure will continue to spread," the report said.
Barofsky's report also took
Treasury to task for failing to implement some of his office's previous recommendations,
such as the need for detailed documentation of communications surrounding
warrant repurchases and the need for independent analyses of companies that
received extraordinary TARP assistance.
The report also noted that
through the end of June, Barofsky's office had 104 active criminal and civil
investigations, up from 84 the previous quarter. The investigations cover
subjects including TARP fraud, accounting fraud, securities fraud, insider
trading, bank fraud, mortgage fraud, public corruption, false statements,
obstruction of justice, trade secrets theft, money laundering and tax issues.
Baforsky's report also revealed
that his office will produce a study of how Treasury hires contractors to
administer TARP; whether their prices are fair and reasonable; and whether
vendors are performing all their work.
In 2008, BailoutSleuth revealed that when Treasury released a copy of a contract with Bank of New York Mellon Corp., it blacked out the section indicating how much the company would earn for its work administering the assets of the $700 billion TARP initiative.
Contracts with law firms, accounting firms and financial services firms handling other portions of TARP were similarly redacted.
According to Barofsky's quarterly
report, other forthcoming audits will examine:
-- The status of Citigroup and the Asset Guarantee Program
-- Capital Purchase Program applications that received conditional approval
-- The selection of asset managers for the legacy securities program
-- Collateral securing loans issued through the Term Asset-Backed Securities Loan Facility, known as TALF
-- Whether pay czar Kenneth Feinberg applied compensation criteria consistently for all TARP recipients subject to pay rules and review
-- The exit strategy for the Capital Purchase Program
-- HAMP's "net present value test," which is used to determine whether borrowers are eligible for the program
The government's three TARP
watchdogs testified before the Senate
Finance Committee Wednesday and continued to criticize the government's
much-maligned mortgage
modification program.
The complaints about the Home
Affordable Modification Program came just a day after the Treasury Department released its latest statistics
regarding its progress. Last month, the number of borrowers booted from the
program was 40,000 higher than the number of borrower who were granted
permanent modifications.
Elizabeth Warren, who chairs
the Congressional Oversight Panel, said
that homeowners needed a program with "far more urgency." She said that for
every one family that has received a permanent modification, 10 have been put
through the foreclosure process.
"This is a program that's just
behind the curve," said Warren, who has previously
grilled Treasury officials on the subject of HAMP during her panel's hearings.
She suggested that loan servicers are dragging their feet on implementing the
program because sometimes they stand to gain more from a foreclosure than a
modification.
Neil Barofsky, Special Inspector General for the Troubled
Asset Relief Program, called Treasury's stated goal of wanting to offer 3 to 4
million modifications "meaningless." He said that unless Treasury "comes clean"
and offers some serious goals and expectations of how many people will be
helped by HAMP, taxpayers will conclude that the program is an "outright
failure."
Barofsky also repeated findings
from another report
discussing inconsistent treatment of companies that were negotiating the
re-purchase of the stock warrants they issued to the government in connection
with their TARP aid.
Some were given more insight than
other into what prices Treasury was willing to accept. He urged Treasury to be
more transparent in that process.
"Transparency isn't just for
transparency's sake," Barofsky said. "It makes programs better. It makes them
more credible."
Warren reiterated her warning
of a coming commercial real estate crisis for banks that have heavy
concentrations in those fields, and she touched on problems
that small banks may have in exiting TARP. Both were subjects of recent COP
reports.
Barofsky repeated criticisms
from his office's recent reports on auto dealership closures.
He said it was important that
Treasury start acknowledging its mistakes. "Those are words we don't hear,"
Barofsky said. "We never hear any acknowledgment that they are
fallible, that they are human."
The number of homeowners removed from the $75 billion Home Affordable Modification Program last month far exceeded the number of homeowners who received permanent mortgage modifications.
Qualifying homeowners seeking modifications are initially placed into trial modifications that last several months. If their paperwork checks out and they make their payments on time, they can eventually receive permanent modifications that last for five years.
But in June, companies in the program cancelled 91,118 trial modifications, compared to the 51,205 trial modifications that were converted into permanent ones.
The total number of cancellations since the HAMP program's inception increased by 21.2 percent to 520,814, while conversions of trials to permanent modifications increased by 14.8 percent, to 398,021.
In a conference call with reporters, Treasury officials attributed those cancellations largely to borrowers who submitted incomplete documentation and missed payments during the trial period.
They said cancellations continue to be high because servicers are responding to a Treasury directive that they clear their backlogs of "aged" HAMP trial modifications that have been in limbo for at least six months. More than 60 percent of the cancellations were aged trials, according to the study.
Still, about 166,000 aged trials remain, with the majority of those attributed to two big services, Bank of America and JPMorgan Chase Bank. Servicers were supposed to have cleared their backlog of aged HAMP trials by the end of June, said Phyllis Caldwell, who leads Treasury's home preservation office.
Nearly half the homeowners booted from their HAMP trials received offers of non-governmental, proprietary modifications from their servicers, Treasury officials emphasized, and fewer than 10 percent of cancelled trial modifications have entered the foreclosure process.
But it's unclear how helpful those proprietary modifications will be in the long-term. While permanent modifications give borrowers an average savings of $510 per month, the government does not track what sort of savings borrowers can expect from non-HAMP modifications.
Critics of HAMP say servicers steer borrowers - desperate for any relief at all - into packages that aren't in their best interest.
Bank of America had the worst conversion rate among the largest mortgage servicers, turning just 23 percent of its HAMP trials into permanent modifications. Other major servicers -- including Wells Fargo Bank, JPMorgan Chase Bank, and CitiMortgage, for example - had conversion rates that hovered around the same level.
Ocwen Financial Corp. was the only servicer among the top 10 largest participants to convert the majority of its trials into permanent modifications. Its conversation rate was more than 60 percent.
The latest HAMP statistics will likely give more ammunition to the program's critics, such as the Congressional Oversight Panel, the Special Inspector General for the Troubled Asset Relief Program, the General Accounting Office, and the House Oversight Committee.
All have pointed out flaws in the program. The common criticisms include its inconsistent treatment of borrowers, a lack of clear consequences for servicers that don't comply with program requirements, and the absence of a clear barometer against which the program's success can be measured.
Those criticisms and others will likely come up Wednesday, when TARP special inspector general Neil Barofsky, COP Chair Elizabeth Warren, and Richard Hillman -- who heads the financial team at GAO -- testify before the Senate Finance Committee
The Treasury Department encouraged automakers seeking TARP funds to rapidly close their dealerships, even though the plan contributed no specific savings to the companies and caused job losses at a time of mounting unemployment, according to a scathing new audit published Monday.
The report focuses on the plans by Chrysler LLC and General Motors Corp. to rapidly reduce their number of dealerships by about 25 percent each, and the role that Treasury played in encouraging the automakers to do so quickly instead of over the course of five years.
The audit was prepared by Neil Barofsky, a former federal prosecutor who now serves as special inspector general for the $700 billion Troubled Asset Relief Program.
Chrysler eliminated 789 dealerships in June 2009, and GM plans to wind down 1,454 dealerships by October of this year. The rationale behind those moves was that the old dealership network was too big, and that by closing some of the dealerships, the remaining ones would be more profitable and better positioned to re-invest in their businesses.
Chrysler and GM , part of the $81 billion auto industry bailout, were told by Treasury that their plans to spread out those closures was not acceptable, largely because the agency thought that the companies should take advantage of their bankruptcies and close their dealerships as quickly as possible, to avoid state franchise laws that would have made the gradual closing more difficult and more costly.
But Barofsky's report said that Treasury should have taken further steps to ensure that the speedy closures were truly necessary to save the automakers. It added that the agency should have considered whether the benefits to Chrysler and GM outweighed the cost to the economy of potentially tens of thousands of job losses.
One estimate by the National Automobile Dealers Association indicated that each dealership closing would cost 50 jobs. According to Barofksy's report, the Treasury Department did not consider the impact the closing would have on job losses until after the decision was made to speed up the closings.
The report noted that the decision to encourage companies to accelerate the closings came during "the worst unemployment crisis in a generation and during the same period in which the government was spending hundreds of billions of dollars on a stimulus package to spur job growth."
The companies were required to submit restructuring plans as a condition of accepting TARP funds. GM's plan originally called for eliminating 1,650 dealerships over five years; Chrysler's didn't contain a specific figure, but would have led to around 1,181 dealerships closings over five years.
Treasury's auto team rejected both plans. Barofksy's report said that GM was told to submit a more "aggressive" plan for the closings, while Chrysler's decision to accelerate the closings was based on verbal input from Treasury's auto team. Ultimately, both companies sped up their plans once they filed for bankruptcy later in 2009.
Treasury's role in encouraging quicker closures is particularly concerning, SIGTARP wrote, since one of the stated goals of the auto bailout was to "preserve and promote jobs of American workers employed directly by the automakers and subsidiaries in related industries." The closures, SIGTARP wrote, were "based on a theory and without sufficient considerations of the decisions' broader impact."
In March, responding to mounting political pressure, GM offered reinstatement to 666 dealers that had sought arbitration and Chrysler offered reinstatement to 50 dealers. Barofsky's report said that those reversals indicate that some of the closings may not have been necessary in the first place.
The report said the accelerated closures were encouraged even though they afforded no particular cost savings to the automakers and instead provided "amorphous" benefits, such as reduced incentive payments to dealerships and better customer service at the surviving sales outlets. Estimates of how much the closing would save the automakers were only developed after the decision to close them had been made.
The report also reveals that there wasn't widespread agreement on the plan. Some experts consulted by Treasury's auto team noted that the strategy of having fewer dealerships and concentrating on metro areas - the so-called "Toyota model" - wouldn't work for Chrysler and GM, which appeal to customers in rural areas where foreign cars are less popular.
Others said that Chrysler's method of closing so many dealerships over a span of just 22 days would likely have caused a larger dent in sales than the alternative method of delayed closures.
"Although the restructuring of GM and Chrysler inevitably required an overall reduction in their own workforces... it is not at all clear that the greatly accelerated pace of the dealership closings during one of the most severe economic downturns in our nation's history was either necessary for the sake of the companies' economic survival or prudent for the sake of the nation's economy recovery," the report said.
The report acknowledged that Treasury is in a difficult position because it is an investor in the companies. Treasury was given a 9.9 percent ownership stake in Chrysler and a 61 percent ownership stake in GM as a result of its investment of public money through TARP. But, the report stated, "the fact that Treasury is acting in part as an investor in GM and Chrysler does not insulate Treasury from its responsibility to the broader economy."
Treasury should have done more to monitor the closings to ensure that they were "carried out in a fair and transparent manner," according to the report, which says GM's closings were not based on consistent and objective criteria, and that Chrysler didn't allow closed dealers to have an appeals process.
Treasury's TARP chief, Herb Allison, wrote that he "strongly disagrees" with many parts of the SIGTARP report. He said that without the government's assistance, GM and Chrysler faced near-certain failure, and the companies fared better under the restructuring plan that they would have without government support.
But Barofsk accused Allison of presenting a "false dilemma" between accelerated terminations and letting the companies fail. "No one from Treasury, the manufacturers, or from anywhere else indicated that implementing a smaller or more gradual dealership termination plan would have resulted in the cataclysmic scenario spelled out in Treasury's response," the report said.
Unusually, three of the failed banks were acquired by a single institution, NAFH National Bank in Miami.
NAFH, led by former Bank of America executive, is a new entity created for the purpose of acquiring failed banks, according to the Jacksonville Business Journal.
The Federal Deposit Insurance Corp. arranged for NAFH to acquire all of the assets and deposits of Metro Bank of Dade County in Miami, Turnberry Bank in Aventura, Fla., and First National Bank of the South in Spartanburg, S.C. The three banks collectively operated 23 branches and will resume operations under their original names.
ยท Metro Bank had assetsof $442.3 million and deposits of $391.3 million
ยท Turnberry Bank had assets of $263.9 million and deposits of $196.9 million;
ยท First National Bank of the South had assets of $682.0 million and deposits of $610.1 million.
Also closing were the eight branches of Woodlands Bank in Bluffton, S.C., which had $376.2 million in assets and $355.3 million in deposits. It will be taken over by Bank of the Ozarks, based in Little Rock, Ark. Woodlands Bank is the second failed institution to be absorbed by Bank of the Ozarks this year. In March, it took over of Unity National Bank in Cartersville, Ga., after it failed.
The Office of Thrift Supervision issued a prompt corrective action - one of the more serious forms of enforcement - against Woodlands earlier this year for being undercapitalized.The bank was ordered to become recapitalized by either merging with or being acquired by another bank, selling off all its assets and liabilities, or selling enough stock to raise its capital ratios.
That order also noted that OTS had the authorization to market the bank to prospective merger partners or buyers.
The remaining closings Friday were:
ยท Mainstreet Savings Bank FSB in Hastings, Mich. The two-branch bank had $97.4 million in assets and $63.7 million in deposits.
ยท Olde Cypress Community Bank in Clewiston, Fla. The four-branch bank had $168.7 million in assets and $162.4 million in deposits.
Commercial Bank, of Alma, Mich., bought Mainstreet Savings Bank's deposits and assets. CenterState Bank of Florida N.A. absorbed Olde Cypress' deposits and assets.
All told, the FDIC agreed to share in the losses on more than $1.3 billion of the assets the successor banks acquired from the failed ones.
Eventually, more than 700 banks took the deal and accepted funds through the Troubled Asset Relief Program. But others - eager to protect their images or unwilling to accept the program's burdens - opted against taking the assistance.
For some, the choice ultimately turned out to be a good one, and they remained successful at a time when many banks struggled. But others have seen their financial condition slide since rebuffing the taxpayer money, and may be wishing they could go back in time.
Case in point: North Carolina's Bank of Asheville. Shortly after Congress created TARP, the bank's holding company wrote in a Securities and Exchange Commission filing that it didn't need the government's help.
Although the Treasury Department initially approved the bank's application for $5 million, company officials ultimately opted not to participate in TARP's Capital Purchase Program.
It's hard to blame them. At the time, the bank had earned the highest rating possible from independent banking analysts Bauer Financial. Bank of Asheville noted in filings that its capital ratios were well-above what regulators required, and that its asset quality was beating the industry average.
The bank decided that its position was strong enough that accepting the government money was not worth it. Joining TARP "would not be in the best interest of company shareholders," the company wrote in its 2009 annual report.
Today, some shareholders may think otherwise.
The bank is just one step above Bauer's worst rating, earning a 1 on a 0 to 5 scale. After posting net operating income of $1.4 million in 2008, the five-branch bank finished 2009 with a loss. Its most recent quarterly statement says that the economic downturn has affected businesses in the bank's market ranging from retail to real estate, and that it is working with customers who don't show signs of future cash flow to liquidate their collateral and initiate foreclosure.
Worst of all, its non-performing assets totaled $26.8 million - an exponential increase from the $2 million in non-performing assets it had during the same period a year earlier. Just last month, G. Gordon Greenwood, president and chief executive of the bank and the holding company, retired. Officials at Bank of Asheville did not respond to BailoutSleuth's request for comment.
And Bank of Asheville is not alone. BailoutSleuth discovered that many other banks that opted not to take TARP funds have seen their condition deteriorate.
Using SEC filings and other sources, BailoutSleuth identified 74 banks, affiliated with 61 holding companies, that chose not to accept TARP funds. The list is not exhaustive, as Treasury does not publicly release the name of banks that withdrew their TARP applications.
A quarter of the banks on BailoutSleuth's list saw their ratings decline after they rejected TARP funds. The figure is cause for concern because many of those banks were financially strong when they made that decision.
A total of 19 banks on the list have lower ratings now than they did on Sept. 30, 2008, just before Congress approved the $700 billion TARP initiative. Another 39 have seen no change, and 13 that rejected government aid actually saw their ratings improve. Three were startup banks that did not have ratings when TARP was created.
Bank of Asheville's experience was echoed by several others on the list, such as OptimumBank, a three-branch institution based in South Florida. On Jan. 20, 2009, the bank announced in a press release that it had received preliminary approval from Treasury for $4.6 million in TARP money. "(W)e, like other financial institutions, continue to face extremely challenging market conditions," said then-board chairman Albert Finch in a statement. "We expect to receive the TARP funds in the near future."
But just three days later, the bank retreated from that position and instead announced that it would decline the loan. "After careful consideration of all factors associated with receipt of TARP funds and the fact that the Company has capital well in excess of that required to be considered well-capitalized under banking regulations, we have decided to decline the TARP money," Finch said in that statement, offering no further explanation.
Now, 18 months later, the bank that rejected money because it was well-capitalized has been ordered by the FDIC to boost its capital. The Federal Reserve also took enforcement action against the bank, and its rating has dropped from a 4 to the lowest-possible rating of 0.
After turning a profit in 2008, OptimumBank had net operating losses of $11.2 million in 2009 and $3 million in the first quarter of this year. Its holding company is at risk of being delisted from the NASDAQ exchange. Finch resigned as chairman and CEO in late 2009.
The company attributes its woes largely to the suffering South Florida real estate market. Bank executives did not return BailoutSleuth's phone calls.
Legacy Banks, with 17 branches serving eastern New York and western Massachusetts bank, rejected a $20 million TARP investment in January 2009, in part because the company believed it wouldn't be in stockholders' best interest. Since then, the company's finances have deteriorated and it stock has fallen 13 percent, to $8.71 a share.
"We are confident in our ability to be able to serve the future borrowing needs of the communities we serve and to pursue our strategic plan and growth opportunities without the Program's capital infusion," Chief Executive J. Williar Dunlaevy said in a statement when the company rejected the TARP aid.
In April 2009, the bank justified the decision to eschew TARP by noting that it originated $41 million in loans in the first quarter of 2009 -- more than a third greater than the previous year, a statistic that "underscores why it would have been superfluous" to accept TARP capital."
But according to its most recent quarterly report, the bank's loan portfolio decreased by $51.3 million to $646.3 million in the first quarter of 2010, compared to the same period a year ago.
The bank's rating has dropped from 5 to 3.5, and after turning a profit in 2008, the bank had net operating losses of $6.4 million in 2009 and $1.2 million in the first quarter of 2010. Paul Bruce, the bank's chief financial officer, did not return messages from BailoutSleuth.
Some banks that rejected TARP maintained their success and others even improved following the decision.
The Bank of Clarke County, which has 11 branches in Virginia, boasts on its website that its business is "all about helping the customer . . . not costing the taxpayer," a barely-veiled criticism of its competitors that signed on to TARP. The bank's rating improved from a 4 to 5 after it rejected $10 million in TARP aid, and its 2010 first quarter net income of $1.6 million is up 66 percent compared to a year ago. At a time when banks are closing and selling off branches, Bank of Clarke County is opening a new branch this summer.
"We are a community bank with local shareholders and we don't believe that it is in their best interest to dilute their ownership and carry capital that we don't need," president and CEO John R. Milleson said when the bank rejected the funds." The company's capital ratios have actually improved since it rejected the government assistance.
German American Bancorp, with 29 Indiana branches, reported $3.5 million in net operating income in the first quarter of 2010 - a 19 percent increase over the first quarter of 2009. In March 2009, the bank announced that it had rejected $25 million in TARP funds for which it had received preliminary approval. The bank now has a 5 rating from Bauer, up from a 4 in the days before TARP.
"We continue to be very pleased with the strength of our earnings and the solid quality of our balance sheet, particularly our loan portfolio," said chairman and CEO Mark A. Schroeder in a statement highlighting the bank's prudent credit standards.
Beacon Federal also decided in December 2008 not to participate in TARP. The bank, with seven branches in Massachusetts, New York, Tennessee and Texas, reported net income of $1.3 million in the first quarter of 2010 - more than double its earnings a year earlier.
Fulton Financial Corp., of Lancaster, Pa., repaid the $376.5 million it received through TARP's Capital Purchase Program in December 2008, while Green City Bancshares Inc., of Green City, Mo., retired its $651,000 obligation.
Meanwhile, HopFed Bancorp Inc., based in Hopkinsville, Ky., sold nearly 3.6 million shares of its common stock at $9 a share. A fourth TARP recipient, Central Virginia Bankshares Inc., is seeking to raise as much as $15 million through a stock offering of its own.
Neither HopFed nor Central Virginia Bankshares, however, disclosed any immediate plans to use the money to repay taxpayers.
Hopfed Bancorp, the parent company of Heritage Bank, got $18.4 million in TARP money in June 2009. It completed the sale of 3.33 million new shares last month, and announced Friday that its underwriter had exercised a portion of over-allotment option and bought 250,000 additional shares.
The sale to the underwriter brought the company an additional $2.14 million in net proceeds.
According to HopFed's June registration statement with the Securities and Exchange Commission, the offering was intended to increase the bank's capital, and to support the possible acquisition of all or part of other institutions.
Hopfed mentioned the repurchase of the preferred stock it issued the Treasury Department in return for its TARP money as only a tertiary possibility, saying the offering would help position the bank for the "eventual redemption'' of those shares.
Both HopFed and Heritage Bank are operating under conditions outlined in two separate memoranda of understanding issued by the Office of Thrift Supervision on April 30, 2010. With the exception of the dividends attached to the company's outstanding preferred stock (including the TARP shares held by the Treasury), neither institution is permitted to "pay dividends or make other capital distributions" without first procuring OTS approval.
The memoranda are also critical of the bank's commercial real estate portfolios, and require Heritage Bank and Hopfed to reduce what the OTS deemed to be excessive concentrations in that area.
Central Virginia Bankshares, based in Powhatan, Va., filed a registration statement with the SEC last month covering the sale of an undetermined number of shares. It set the maximum value of the offering at $15 million.
The company owns Central Virginia Bank, which got roughly $11.3 million in TARP aid in February 2009.
Central Virginia Bankshares, which has lost $18.8 million over the past two years, has bigger concerns that repaying its TARP money. It said in its registration statement that the parent company and the bank probably would become subject to stricter regulatory supervision by the end of the second quarter, because of its deteriorating finances and problems in its loan portfolio.
Indeed, it later announced that on June 30 it entered into a written agreement with the Federal Reserve and Virginia regulators that called for the company and the bank to submit plans for strengthening the bank's management and governance, improving its credit-risk management, boosting asset quality, addressing problem loans and maintaining sufficient capital.
Central Virginia Bankshares did point to its possible exit from TARP earlier this year, when it sought to amend its articles of incorporation to boost the number of authorized shares to 30 million, from 6 million. "We want to have the authorized shares available to issue additional shares in the future for other corporate purposes," it claimed, "including the possibility of paying off our TARP obligation."
That language, however, was conspicuously absent from the registration statement for the share sale.
The settlement is the largest ever paid by a Wall Street firm, according to the SEC.
As part of the settlement, Goldman also admitted that its marketing materials for the products - known as ABACUS 2007-AC1 - were incomplete.
The SEC has alleged that Goldman did not fully disclose key facts about synthetic collaterized debt obligations it marketed that were tied to the performance of subprime mortgage-backed securities.
Hedge fund Paulson & Co. Inc. played a role in selecting those securities and took a short position against the CDOs - a fact not disclosed to the investors.
Essentially, Goldman was marketing a product that was designed to fail. The deal wound up costing investors about $1 billion, and generated roughly the same amount in profits for Paulson.
"(I)t was a mistake for the Goldman marketing materials to state that the reference portfolio was 'selected by' ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors," the company said in its settlement. "Goldman regrets that the marketing materials did not contain that disclosure."
Officially, Goldman has not admitted or denied any of the allegations made by the SEC. As part of the settlement ,$250 million will be returned to investors, and $300 million will be paid to the U.S. Treasury.
Goldman also will review its internal controls pertaining to the marketing of similar products to ensure that future disclosures are "full, accurate and complete," said Robert Khuzami, the SEC's enforcement chief.
"This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing," Khuzami said. "Those principles do not change regardless of how complex the product or how sophisticated the investor."
Khuzami emphasized that the penalty is significantly higher than the $15 million Goldman made on the transaction. Lorin Reisner, deputy director of the SEC's enforcement division, said the penalty imposed against Goldman would be a "powerful deterrent" against future misconduct by Wall Street firms.
The settlement is subject to approval by Judge Barbara Jones of the U.S. District Court for the Southern District of New York. The settlement pertains only to the ABACUS deal and does not pertain to any other areas that may be investigated.
Fabrice Tourre, an executive at Goldman, continues to face charges from the SEC related to the same case. As part of the settlement, Goldman will assist the SEC in its case against Tourre, Reisner said.
The legislation, which is more than a year in the making, emerged from conference committee and was passed by the House two weeks ago. It is expected to be signed into law by President Obama next week.
The legislation will outfit federal regulators with expanded authority designed to curb financial institutions' risky behavior. It also imposes new leverage, liquidity and capital requirements on financial institutions.
Democrats say the legislation will put an end to "too big to fail" by giving regulators the ability to wind down financial firms that pose a systemic risk to the economy.
The bill creates a consumer financial protection agency that will design and enforce rules pertaining to mortgages, credit cards and other products. It also imposes further regulation regarding the trading of derivatives.
The legislation also immediately ends the Treasury Department's ability to spend further money on TARP. The move will likely not have a practical impact on the program, as Treasury Secretary Timothy Geithner recently said Treasury did not have plans to launch any new TARP programs.
For more details about what's included in the financial reform package, click here.
]]>Golub was replaced by Robert S. "Steve" Miller, who was elected to the board a year ago. Miller is a turnaround specialist who helped restructure a number of large financially strapped companies, including Delphi Corporation .
He also is chairman of a private equity firm called MidOcean Partners.
In his letter of resignation, Golub said that Benmosche had informed the board that the working relationship between the two was "ineffective and unsustainable."
"Consequently, I'm resigning for the simple reason I believe it is easier to replace a chairman than a CEO," Golub wrote.
Golub was the chief executive of American Express Corp. from 1993 to 2001.
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