Taxpayers could take hit on North Carolina TARP deal

Taxpayers could lose up to half their investment in Raleigh, N.C.-based Capital Bank Corp., which received $41.3 million in TARP aid in December 2008, now that it has agreed to sell a controlling interest to another institution.

North American Financial Holdings Inc. agreed to invest $181 million in Capital Bank in exchange for an 85 percent stake in the company, in a deal announced last week.

North American Financial, a new company led by former Bank of American executives, has raised $900 million in capital that it is investing in undercapitalized and failed banks, with the intention of creation a new regional bank.

It has already invested in TIB Financial Corp., MetroBank of Dade Country, Turnberry Bank and First National Bank of the South, as BailoutSleuth has previously reported.

As part of the deal, Capital Bank is required to repurchase the preferred stock held by the Treasury Department through the government's TARP investment. It's seeking a 50 percent discount, although it may agree to a smaller reduction,  according to an SEC filing (exhibit B) made Tuesday.

Capital Bank has not yet entered into any agreement with the Treasury Department.

North American Financial's investment gives a lifeline to the struggling Raleigh bank, which has taken a precipitous slide over the last year. Capital Bank reported net losses before taxes of $17.2 million for the quarter ending June 30. During that period in 2009, it had net income before taxes of $1.73 million.

R. Eugene Taylor, chief executive of North American Financial, will also become CEO of Capital Bank,, which has 32 offices in North Carolina.

"We are thrilled to have NAFH invest such a significant amount of capital in Capital Bank Corporation," said Capital Bank's current chief executive, B. Grant Yarber, in a statement. "We strongly believe that this is indicative of the value of our franchise and the markets that we enjoy. This capital injection will allow Capital Bank to move forward providing expanded opportunities for our customers, our employees, and our shareholders."

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