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CPP Insider

More than $25 billion in December TARP investments

January 7, 2009

By MortgageDaily.com staff


Investments in banks under the Troubled Asset Relief Program exceeded $25 billion last month. So far, the U.S. government has taken stakes in more than 200 banks for which it hopes to earn more than $40 billion.

A report from the U.S. Department of the Treasury indicated $26.1 billion in senior preferred shares was purchased from 162 financial institutions under the capital purchase program during December. Since launching the program, $177.5 billion has been invested in 214 institutions. Another $10 billion in commitments are still outstanding.

A statement issued by the American Bankers Association explained that the capital purchase program is available only for healthy banks. The investments are expected to earn the Treasury more than $30 billion, while warrants are expected to generate additional returns of between $10 billion and $15 billion.

The capital invested in the banks supports lending at as much as seven times the level of new capital, ABA said. New lending grew by $295 billion in the third-quarter 2008 at the 18 largest TARP capital banks -- an 8 percent increase.

Citigroup Inc. reported that is issued $20 billion in perpetual preferred stock on Dec. 31 to the Treasury. But Citi said it will pay 8 percent dividends over the term of the investment instead of the 5 percent paid by most banks during the first five years and 9 percent thereafter.



CPP Journal
Company
Date
Announced
Action
Amount
Fifth Third Bancorp Dec. 31 sale completed $3.4 billion
New York Community Bancorp Inc. Dec. 31 preliminary approval $596 million
First Banks Inc. Dec. 31 sale completed $295 million
Flagstar Bancorp Inc. Dec. 31 preliminary approval $266 million
Hampton Roads Bankshares Inc. Dec. 31 sale completed $80 million
Yadkin Valley Financial Corp. Dec 31 preliminary approval $36 million
Legacy Bancorp, Inc. Jan. 2 preliminary approval $20 million
Oak Ridge Financial Services Inc. Jan. 6 preliminary approval $8 million

Related
The Capital Journal
MortgageDaily.com has tracked almost 50 of the nearly 90 institutions that have accessed or been approved to access the $700 billion Troubled Asset Relief Program. Two non-banks recently announced their intentions to become bank holding companies -- though a failed attempt by another firm to become a bank holding company could spell disaster for one of the country's biggest mortgage lenders.

CPP Journal
A new watchdog has been confirmed to oversee the $700 billion Troubled Asset Relief Program -- which has seen plenty of action recently.

Firms Restructure to Tap TARP Funds
The U.S. Department of the Treasury has already disbursed $150 billion in funds from the Troubled Asset Relief Program to financial institutions and still has another $100 billion to go. The lure of cheap capital has prompted another five firms -- including a commercial financial company, a mortgage servicer and a mortgage insurer -- to initiate the process of converting to bank-holding companies. Three firms are making bank acquisitions as part of the conversion process.

Banks Jump On CPP Bandwagon
A stream of banks have recently reported being approved to sell nearly $1.5 billion in securities to the U.S. Department of the Treasury under the Troubled Asset Relief Program. Most of the participants indicated that they were already well capitalized.

Banks Continue to Tap CPP
Utilization of the Treasury's capital purchase program continues to be brisk -- with most institutions promising to use the funds to strengthen community activity. The program taps into available funds from the $750 billion Troubled Asset Relief Program.

Banks Grab TARP Capital
More than 1,000 financial institutions have applied for or received capital investments from the Troubled Asset Relief Program, according to Congressional testimony. Funds from the program will be used to support lending and acquire other banks.

Troubled Mortgage Asset Purchases Curtailed
The U.S. Treasury secretary said today that the Troubled Asset Relief Program will not be used to purchase troubled mortgage assets. He said the $700 billion fund would be better utilized for capital investment.

TARP purchases of distressed assets put on hold

Some Firms Saved by Mergers
Mergers have picked up steam as several mortgage companies teeter on the brink of insolvency. Some of the mergers are forcing changes at the top of the executive ranks. Meanwhile, losses continue to pound financial firms -- forcing regulator actions at some.

Volatile Banking Sector Reshapes
As capital continued to be wiped out and dozens of small banks were hit with regulatory orders, some financial institutions have been approved to participate in the government's capital purchase plan. One mortgage company is shedding its real estate investment trust status, another is shutting down its commercial operations and a third will be acquired by a bank.

Government to Invest in Banks
Some of the $700 billion Troubled Asset Relief Program will be used for the U.S. government to invest directly in U.S. banks. The rescue package also includes bank loan guarantees and provisions to stabilize the commercial paper market.

$250 billion of TARP funds targeted



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