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Banks Grab TARP Capital

Capital purchase program participation

November 18, 2008

By MortgageDaily.com staff

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.

A number of large banks have utilized the capital purchase program, Federal Deposit Insurance Corporation Chairman Sheila C. Bair told the House Financial Services Committee today -- according to a transcript of her prepared testimony. In addition, more than 1,000 community financial institutions have applied so far for the program.

Bair was speaking at a hearing about oversight of the implementation of the Emergency Economic Stabilization Act of 2008, government lending and insurance facilities.

The chairman warned that it is critically important for community banks with less than $1 billion in assets to participate in the program. While the viability of the sector is strong, the program offers the small institutions the chance to strengthen their capital and boost their lending.

"Community banks control 11 percent of industry total assets; however, their importance is especially evident in small towns and rural communities." Bair said. "Although, as a group, community banks have performed somewhat better than their larger competitors, they have not fully escaped recent economic problems."

photo of Sheila Bair
Sheila Bair

The American Bankers Association echoed Bair's concerns.

photo of Ed Yingling
ABA photo of Edward Yingling

"We urge the Treasury to ensure that sufficient money remains to fully fund the CPP for community banks accepted into the program," ABA President and Chief Executive Officer Edward L. Yingling testified at the same hearing -- according to a transcript of his prepared testimony. "It would be most unfair, and would result in competitive inequality, for the community bank program not to be fully funded."

Yingling added that while most U.S. banks were well capitalized and did not originate toxic mortgages, the "bank bailout" headlines tarnished the industry.

"To my knowledge, no one in the banking industry requested a capital program, and the ABA certainly did not," Yingling said.

Regions Financial Corp. announced it sold the Treasury $3.5 billion in preferred shares. Regions said the funds will enable it to keep lending. The government will also receive 10-year warrants for common stock.

Cumulative dividends on the program are 5 percent during the first five years and 9 percent thereafter.

SunTrust Banks Inc. reported in a Securities and Exchange Commission filing yesterday that it sold the Treasury 35,000 fixed-rate cumulative perpetual preferred stock for $100,000 per share in a $3.5 billion transaction.

Popular Inc. said the Treasury's $1.0 billion investment in the Puerto Rico-based company represents about 3 percent of its consolidated risk weighted assets as of June 30.

First Horizon National Corp. said Monday that it plans to use Treasury's $0.9 billion investment for increased lending and further investments in its regional banking and capital markets businesses.

Valley National Bancorp, which reported Friday that it sold 300,000 senior preferred shares for $0.3 billion to the Treasury under the capital purchase program, said it intends to use the proceeds for general corporate purposes -- including the acquisition of other financial institutions. The deal includes 2.3 million in warrants for Valley's common shares.

Citizens Republic Bancorp Inc.'s Chairman, President and CEO William R. Hartman said the Treasury's $0.3 billion in his company "will expand our ability to meet the needs of our clients, shareholders and the communities we serve."

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