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TARP Marches On

By: Bill Poquette and Sharon Smith

Events surrounding the financial industry crisis and related rescue efforts moved at a rapid clip last month. First there were the results of the much-ballyhooed stress tests, following which were almost daily announcements of capital-raising measures. At almost the same time, recipients of TARP Capital Purchase Program funds were lining up to buy back the government’s investments. And as the month wound down, Treasury Secretary Timothy Geithner revealed that proceeds of the repayments would be used to reopen the application window for banks under $500 million in assets.

The upshot of the stress tests was that 10 of the 19 largest U.S. financial institutions were told to raise capital, in amounts ranging from $600 million at PNC Financial Services Group Inc. to $33.9 billion for Bank of America Corp. Also on this list (amounts in billions) were Citigroup Inc. ($5.5), Fifth Third Bancorp ($1.1), GMAC LLC ($11.5), KeyCorp ($1.8), Morgan Stanley ($1.8), Regions Financial Corp. ($2.5), SunTrust Banks Inc. ($2.2) and Wells Fargo & Co. ($13.7). Off the hook were American Express Co., BB&T Corp., Bank of New York Mellon Corp., Capital One Financial Corp., Goldman Sachs Group Inc., JPMorgan Chase & Co., MetLife Inc., State Street Corp. and U.S. Bancorp.

Apparently investors viewed the news as not as bad as expected. On Friday, May 8, the day after the results were announced, the SNL Financial Bank Index jumped 9.82 percent.

With the stress test results and accompanying hoopla out of the way, a number of companies — large, medium and small — announced plans to raise capital, in many cases to pay back TARP funds. Among them were Bank of America Corp, $13.5 billion; Northern Trust Corp., $750 million; Wells Fargo & Co., $6 billion; KeyCorp, $750 million; State Street Corp., $2 billion; Texas Capital Bancshares Inc., $3.5 million; Guaranty Bancorp, $50 million; U.S. Bancorp, $2.5 billion; Marshall & Ilsley Corp., $350 million; and PrivateBancorp Inc., $217 million.
As May wound down, new withdrawal plans were almost a daily occurrence. Three of the largest Wall Street firms announced or were expected to announce plans to return their TARP funds. Collectively, Goldman Sachs, JPMorgan Chase and Morgan Stanley will seek to buy back more than $40 billion of CPP money. State Street Corp. and U.S. Bancorp also were among those signaling their intent to buy back CPP shares.

Meanwhile, Treasury Secretary Geithner used the annual Washington Policy Summit of the Independent Community Bankers of America as the forum to announce that his department plans to re-open the CPP application window for smaller banks and raise from 3 percent of risk-weighted assets to 5 percent the amount for which qualifying institutions can apply. This applies to all term sheets — public and private corporations, Subchapter S corporations and mutual institutions, Geithner said. Current CPP participants will be allowed to reapply, and will have an expedited approval process.

The secretary said the deadline for small banks to form a holding company for the purposes of CPP will be extended. Both the window to form a holding company and the window to apply or re-apply for CPP will be open for six months, he said.

Will these smaller banks take up Geithner’s offer? It remains to be seen, but more than 250 financial institutions have withdrawn their applications for funds under the CPP. Each has received preliminary approval for the funds. The withdrawals were in the report filed by the Financial Stability Oversight Board for the period of Jan. 1 through March 31.

The attitude of companies repurchasing shares or declining to participate even if approved was summed up pretty well by Curtis L. Hage, chairman, president and CEO of HF Financial Corp. of Sioux Falls, S.D., which has filed notice to repurchase its $25 million of preferred stock issued to the Treasury:

“We were an early participant in the CPP at the request of our government for healthy banks to be part of the economic stimulus program,” Hage said. “We have considered events that have continued to unfold since our decision to participate in the CPP, including public perception of participants in the CPP. Our board of directors has determined that it is in the best interest of our company and our stockholders to exit the CPP. We are not dependent upon the CPP funds for the continued execution of our business plan, and returning these funds to the Treasury will allow us to remain committed to our mission of being the leading financial services provider to businesses and individuals in the communities we serve.”

Bill Poquette is editor-in-chief and Sharon Smith is managing editor of BankNews.

Copyright © June 2009 BankNews Publications