|The focus of the Troubled Asset Relief Program has shifted from how much banks are receiving to what they are doing with the capital and how they are compensating their senior executives. Testimony on Capitol Hill, meantime, was mixed on the government's bank investments.
A report last month from the U.S. Government Accountability Office indicated that $294 billion had been disbursed by the Treasury from the $700 billion TARP fund as of Jan. 23, including $194 billion invested in 317 financial institutions under the capital purchase program.
The GAO recommended broadening the scope of monthly CPP surveys to "further improve the integrity, transparency, and accountability of the program and more clearly articulate and communicate a strategic vision."
The Treasury Department released a Feb. 4 statement indicating that senior executives at institutions receiving exceptional financial recovery assistance will be limited to $500,000 in annual compensation. The executives, however, can receive restricted stock that vests when principal and interest on government debt has been fully repaid.
The number of executives subject to clawback provisions has been increased to 25 from five, while shareholders must approve senior executive compensation. In addition, a ban on golden parachute payments will be extended to the top 10 executives from the top five, and the next 25 executives will be limited to golden parachute payments of one year's salary.
The Treasury is also requiring company boards to adopt a policy on luxury purchases, travel and entertainment.
For firms that receive future investments through generally available capital access programs such as the capital purchase program, the Treasury is proposing similar guidance for public comment.
In testimony before the House Committee on Financial Services earlier this month, American Bankers Association President and Chief Executive Officer Edward L. Yingling called on the Treasury to fulfill the TARP commitment to community banks.
He endorsed TARP's specific citation of S-corporations -- which have disproportionately been impacted by the current economic crisis even though their role was limited. He noted that the Treasury began allowing S-corporations to issue subordinated debt for TARP investments -- extending the CPP's reach by 2,500 institutions.
Yingling also called for an end to the disparity between CPP terms for S-corporations that are stand-alone banks versus those for other institutions. He additionally recommended special provisions that would enable wider participation by the nation's mutual banks.
At the same hearing, Federal Deposit Insurance Corporation Deputy Chairman and Chief Operating Officer John F. Bovenzi testified that financial institutions were able to avoid the natural response of cutting back on lending during periods of distressed credit markets because of CPP investments.
He supported equal CPP access for community banks -- which are institutions with less than $1 billion in assets. So far, Bovenzi noted, 1,600 community financial institutions have applied to the program.
"The goal of providing government support is to ensure that such cut-backs and adjustments are made mostly in areas such as dividend policy and management compensation, rather than in the volume of prudent bank lending," Bovenzi, who is also the acting CEO of IndyMac Federal Bank FSB, said.
But mortgage bankers want to see TARP funds redirected as originally proposed.
"Above all else, we believe it is important to return TARP to its original purpose, which was to purchase non-performing assets off banks' balance sheets," Mortgage Bankers Association President and CEO John A. Courson testified.
A $372 million CPP dividend was declared and paid by Wells Fargo & Co. this month, the San Francisco-based firm announced. Wells said it has originated or commited to almost $500 billion in loans since credit began contracting 18 months ago.
Bank of America Corp. announced yesterday that it paid a $402 million dividend to the U.S. Treasury on its $45 billion in outstanding government investments. Government investments included $15 billion in CPP funds, $10 billion as part of its agreement to acquire Merrill Lynch & Co. Inc. and $20 billion that was provided by the government to help facilitate the acquisition of Merrill.
BoA boasted $115 billion in new credit extended during the fourth quarter.
In an interview with CNBC earlier this month, BoA Chairman and CEO Ken Lewis said he hoped to payoff TARP investments within around three years. He indicated that the Charlotte, N.C.-based institution doesn't expect to seek any further TARP investments.
Citigroup Inc. reported this month that it has deployed $45 billion in TARP capital so far, including $26 billion in residential originations, $6 billion in credit card lending and $3 billion in personal and business loans.
"We have already approved $36.5 billion in initiatives backed by TARP capital that are consistent with the objectives and spirit of the Treasury program," Citi CEO Vikram Pandit said in the statement. "And, as part of our ongoing business, Citi continues to lend to consumers and businesses in the United States, where we extended approximately $75 billion in new loans during the fourth quarter."
More than $300 million in TARP investments in Sterling Financial Corp. will be utilized for new and enhanced lending initiatives, a press release last week said. Sterling said residential lending subsidiary Golf Savings Bank was allocated $25 million, while commercial bank subsidiary Sterling Savings Bank was allocated $208 million to increase "lending activity to creditworthy borrowers." The rest of the capital was retained by Sterling.
Two weeks ago, Citizens South Bank said it planned to use its $21 million in TARP capital to provide new-home financing that is subsidized by local home builders and developers. The program includes an interest rate that is set at 3.5 percent during the first two years then adjusts to 5.5 percent. The mortgage programs include waived closing costs.
An $0.1 million dividend on CPP investments was declared last week by Coastal Banking Company Inc.
Other CPP activity is included in the following table. Terms of the investments are typically 5 percent dividends during the first five years and 9 percent thereafter.