BailoutSleuth

Five more banks go under, including one with $11.2 billion in assets

2009-11-07T12:12:39Z

Regulators seized five more financial institutions on Friday, including a bank in San Francisco that had $11.2 billion in assets and primarily served the Chinese-American community.

United Commercial Bank, which also had operations overseas, was the last to be shut down, making it the 120th bank to fail this year. The Federal Deposit Insurance Corp. arranged for East West Bank, which also serves the Asian-American market, to take over United Commercial's 63 U.S. branches, as well as subsidiaries in Hong Kong and Shanghai.

East West Bank, based in Pasadena, Calif., bought United Commercial's $7.5 billion in deposits, paying a premium of 1.1 percent. It also bought $10.2 billion of the failed bank's assets, with $7.7 billion subject to a loss-sharing deal.

The other four banks shut down this week were Prosperan Bank, of Oakdale, Minn.; United Security Bank, of Sparta, Ga.; Gateway Bank of St. Louis, and Home Federal Savings Bank, of Detroit.

Alerus Financial NA, of Grand Forks, N.D., agreed to take over Prosperan's three branches, its $175.6 million in deposits. It also bought $173.9 million of Prosperan's $199.5 million in assets, with all of the acquired assets covered by a loss-sharing deal.

Ameris Bank, of Moultrie, Ga., took over United Security Bank's two branches, along with its $150 million in deposits. Ameris also bought nearly all of the failed bank's $157 million in assets, with $123 million subject to a loss-sharing agreement.

The FDIC arranged for Central Bank of Kansas City to take over Gateway Bank's lone branch, as well as its $27.9 million in deposits and $27.7 million in assets.

Liberty Bank and Trust Co., of New Orleans, assumed the operations of Home Federal Savings. It acquired two branches, $12.8 million in deposits and $14.9 million in assets. The Office of Thrift Supervision had ordered Home Federal in March to find a buyer to help resolve its financial problems.

Both Gateway Bank and Home Federal Savings were African-American owned financial institutions.

The FDIC said the latest closings would cost its already hard-hit insurance fund an estimated $1.53 billion.

Oversight Panel: Loan Guarantees Created Major Risk

2009-11-06T16:17:19Z

Several of the federal bailout programs will make a profit, but the effort has also exposed taxpayers to enormous risk and created a moral hazard for investors, according to a new congressional report.

The Congressional Oversight Panel said the Treasury Department's expanded efforts to guarantee loans and deposits at federally regulated banks had a "significant role" in stabilizing credit markets.

These efforts, which included expanding the amount of deposits covered by the Federal Deposit Insurance Corp. and guaranteeing as much as $300 billion in assets held by Citigroup Inc. in late 2008, "have exceeded the total value of TARP, making guarantees the single largest element of the government's response to the financial crisis," the panel reported.

At its high point this year, the government was guaranteeing $4.5 trillion in assets. Because few if any of these guarantees have been called on, the government stands to make a profit on fees connected to the program.

Nevertheless, the effort was a major risk, the oversight panel said, noting that if the markets had collapsed further, "taxpayers could have suffered enormous losses." In addition, the panel said that the loan guarantees had created a moral hazard that might encourage banks and other institutions to take large risks out of the belief the government would back their positions.

The panel urged the Treasury to provide more details about the rationale behind guarantee programs, the alternatives that may have been available and the reasons they were rejected. It also said the agency should provide more information about whether these programs have achieved their objectives.

It also asked for specific disclosures about the Citigroup asset guarantee, "including information on the status of the final composition of the asset pool and total asset pool losses to date, as well as what the projected losses of the pool are and how they have been calculated."

PlainsCapital Calls Off TARP-Related Public Offering

2009-11-05T17:31:30Z

PlainsCapital Corp., which over the summer announced a public offering ahead of plans to withdraw from the bailout program, has put off the sale.

The Dallas-based bank had hoped to raise as much as $140 million from the offering, more than enough to redeem the $92 million in stock it gave the Treasury Department in exchange for assistance under the Troubled Asset Relief Program.

At the time, PlainsCapital was seen as a bright star in the banking industry, and experts said the bank's willingness to initiate a stock sale was a sign of its underlying strength.

"If they had any hesitation, if they saw their asset quality was deteriorating or any sign their bank was going to go through tough times, they wouldn't have done this," Dan Bass, an investment banker with Houston-based Carson Medlin Co. told the Dallas Morning News when the offering was announced.

That assessment has been called into question by the bank's decision not to follow through. Bank executives blamed current market conditions for the change of heart.

"The current market volatility, especially as it affects financial stocks, has created unfavorable conditions for the offering," said Alan White, PlainsCapital's chairman and chief executive. "We have decided to postpone the IPO and wait for an improved market environment."

Treasury Announces Additional PPIP Investment Group

2009-11-04T21:26:16Z

The Treasury Department approved another investment group to participate in a public-private partnership with the government to buy risky housing-related securities.

Angelo, Gordon & Co. L.P. and GE Capital Real Estate will invest in the Treasury's Public-Private Investment Program, the department announced. It did not specify the size of the investment.

Under the program, the Treasury guarantees loans used to purchase the assets, which include the mortgage-based derivatives many believe contributed to last year's financial crisis.

Creating a market for these assets has been a primary goal for the Treasury since the credit markets froze up. By backing loans used to buy them, the government hopes to move them off the books of traditional banks and free them up to resume normal lending activity.

Nevertheless, the PPIP program has come under fire as demand for the securities has improved since last year's the financial meltdown. Some critics have questioned whether the assistance amounts to a giveaway to the financial industry.

To date, six investment groups have completed initial closings on approximately $3.58 billion of private sector equity capital, which Treasury has matched, representing $7.17 billion of total equity capital. Treasury has also provided $7.17 billion of debt capital, representing $14.34 billion of total purchasing power, the department said.

GAO: Automakers Face Long and Uncertain Recovery

2009-11-03T19:35:15Z

The automobile bailout has allowed the nation's major automakers to make important changes in their operations, but much remains uncertain about their viability moving forward, a government oversight office said.

General Motors and Chrysler have succeeded in reducing debt and production costs, cutting brands and rationalizing their dealership networks to weed out underperforming operators, the Government Accountability Office said in a new report.

These efforts, the GAO said, were a good start. But the report added: "Whether and to what extent these changes will improve Chrysler's and GM's profitability and long-term viability remains to be seen."

The GAO noted that the two companies, having gone through bankruptcy proceedings earlier this year, were still preparing new financial statements to account for the change in corporate identity, and so no hard conclusions could be made about recent operations.

GAO also said that the current economic environment made it difficult to assess the companies' long-term futures, saying that "whether enough time has passed for the impact of the structural changes to be seen is unlikely, especially given that the automakers have not completed restructuring, the economy is still recovering, and new vehicle purchases remain at low levels."

Moving forward, GAO recommended that the Treasury Department continue to hire employees with expertise in the auto industry. It also suggested that the department be open and explicit about the measurements it intends to use to assess the companies' operations in the future.

E-Trade Drops TARP Application

2009-11-03T16:42:40Z

After almost a year of waiting, E-Trade Financial Corp. withdrew its application to participate in the federal bailout program.

The online brokerage said in a regulatory filing with the Securities and Exchange Commission that it had raised enough money in a recent round of stock sales that it no longer needed the $800 million it had applied for under the Troubled Asset Relief Program.

The company also recently completed a $1.74 billion debt exchange that cut its interest payments in half.

In its filing with the SEC, E-Trade said it was responding to an inquiry from the Office of Thrift Supervision about whether it would join the program, perhaps suggesting concern by the regulator after almost a year had passed without final action on the company's TARP application.

Although the Treasury Department has not released details about how it evaluates TARP applications, it is generally understood that only financially sound institutions are likely to be approved. Institutions unlikely to be approved have typically been quietly warned to withdraw their applications.

CIT Enters Prepackaged Bankruptcy

2009-11-02T18:59:00Z

CIT Group Inc. filed for bankruptcy protection over the weekend, a move that will likely save the company but also result in a multi-billion dollar loss for taxpayers.

After months of negotiations with creditors and federal regulators, the business-financing giant announced it had submitted a Chapter 11 prepackaged bankruptcy plan.

Under the plan, bondholders will receive 70 cents for each dollar of liabilities. Overall, the company owes $64 billion to creditors and has $70 billion in assets, the New York Times reported. Roughly $800 million in debt was due to mature over the weekend and early this week.

Without a prepackaged bankruptcy, lenders stood to make back only seven cents on the dollar, CIT executives told the paper.

But while the filing is good news for most bondholders, American taxpayers stand to take a complete loss on the $2.3 billion that the Treasury Department invested in CIT through the Troubled Asset Relief Program. In exchange, CIT gave the government stock and warrants, all of which are likely to become worthless as a result of the bankruptcy reorganization.

CIT's bankruptcy marks the fifth largest as measured by assets in American history and the largest since federal regulators seized Washington Mutual last year.

In Slow October, Two More Banks Take TARP Funds

2009-10-30T22:06:19Z

Two more banks received funding under the Troubled Asset Relief Program, closing out the slowest month in bailout history.

Washington State-based Regents Bancshares Inc. took home $12.7 million in assistance. In exchange it gave the Treasury Department an equal amount of stock shares and exercised warrants.

Cardinal Bancorp II, based in Missouri, also received bailout funding. It received $6.2 million in exchange for subordinated debentures and exercised warrants.

Only four banks have received bailout assistance in October, and the two recent allocations were the first in three weeks, the longest period without one.

Overall, the Treasury Department has dispensed $204 billion in assistance to financial institutions. Of that, $70.7 billion has been returned by banks seeking to escape the program's regulatory strictures on executive pay and the distribution of dividends.

Feinberg Once Again Takes Aim at AIG Bonuses

2009-10-29T17:54:11Z

The Obama administration's pay czar told Congress that renegotiating executive salaries at American International Group Inc. is a "top priority," but that he would not seek to expand his authority to regulate pay at smaller financial institutions.

Kenneth R. Feinberg told a House oversight committee that he was taking a close look at approximately $200 million in bonuses that AIG is due to pay its top employees in 2010. The company came under fire earlier this year when it was reported that it would pay out $165 million in bonuses to employees of its financial products division.

AIG, which sustained heavy losses from imprudent bets on mortgage derivatives, got $68.9 billion in government assistance under the Troubled Asset Relief Program and has received nearly that much through other aid programs. As one of the top seven recipients of bailout money, the firm is subject to Feinberg's oversight.

Feinberg's legal authority to renegotiate compensation, however, is limited to employment contracts drafted after bailout aid was accepted. In his testimony, he said that he had already had success in getting "almost all" firms to voluntarily lower previously agreed upon contracts, the Washington Post reported. He said he expected similar success with the pre-existing AIG retention bonuses.

In his testimony, Feinberg also rejected suggestions by some members of Congress that he ask for extended authority to oversee compensation across the banking sector. He said that the large sums expended by taxpayers to bail out the seven largest firms justified his interference, but that he was "wary of exceeding his mandate," the Wall Street Journal reported.

GMAC Set To Receive Additional Bailout Assistance

2009-10-28T18:53:29Z

GMAC Financial Services Inc. is in close talks with the federal government for an additional tranche of bailout funding, according to the Wall Street Journal. If approved, the decision would make the company the first to receive three separate support packages.

The auto lender will likely get between $2.8 billion and $5.6 billion, company officials told the paper, for which it would trade preferred stock. Since GMAC has received $12.5 billion in bailout assistance.

As the lead wholesale lender for General Motors dealerships, the company has struggled alongside the rest of the auto industry. At the height of the financial crisis last year, it received regulatory approval to transform into a bank holding company, thus making it eligible for assistance under the Troubled Asset Relief Program.

GMAC's involvement in the bailout also subjected it to the Treasury Department's stress tests, which determined the company required an additional $11.5 billion to maintain adequate capital levels.

In addition to making a large capital injection, the government also plans to offer GMAC $2.9 billion in additional loan guarantees, the Journal reported. The Federal Deposit Insurance Corp. has already backed $4.5 billion in GMAC-issued debt this year.

Two more TARP recipients head for exits

2009-10-27T14:11:03Z

Two more banks prepared to exit the federal bailout program this week amid signs that the Treasury Department will be winding down some key initiatives.

New Jersey-based OceanFirst Financial Corp. said that it had begun a $50 million stock offering with a view toward repaying the $38.2 million it received under the Troubled Asset Relief Program.

In a similar move, North Carolina-based Citizens South Banking Corp. announced a $30 million stock sale. In a statement, the bank said it would use "a portion of the net proceeds" to repay the $20.5 million it owes the Treasury Department.

The two banks' stock sales reflect a growing trend among banks eager to escape the heightened regulatory environment that came with accepting government assistance. Banks have particularly objected to restrictions on executive pay and the distribution of dividends.

So far, of the more than $204 billion lent out to the banks, more than $70 billion has been returned.

The Treasury also appears to be slowing down its distribution of funds. On Friday, the department announced that no banks received bailout assistance for the previous three weeks, the longest fallow period since it began late last year.

Bank of America Repayment Plan Runs Into Trouble

2009-10-26T17:58:17Z

Bank of America Corp.'s efforts to leave the federal government's bailout plan have been stalled by disagreements over the bank's capital position, according to a new report.

The bank, which has received $45 billion in assistance under the Troubled Asset Relief Program, has long been interested in exiting the program, in large part because the aid had come with a host of regulations on such matters on executive pay and the distribution of dividends.

The former issue came to a head just last week, when the Treasury Department's pay czar slashed salaries at the seven largest bailed-out firms, including Bank of America. That ruling would not longer apply if the bank no longer owed the government TARP money.

Leaving the program, however, is not as easy as writing a check. The Treasury has said that bank seeking to redeem the stock and warrants they gave the government in exchange for assistance must prove they are stable without it and can raise capital without government guarantees.

The current dispute centers on the bank's capital position, the Wall Street Journal reported. Bank of America has raised $40 billion in additional capital since May - enough, some bank executives say, to allow it to return the TARP funds. Officials at the Treasury Department, however, "believe it ought to replace some of the federal money with new capital above and beyond the $40 billion of equity identified so far this year."

To raise additional capital, Bank of America would have to sell shares, thereby diluting the positions of existing shareholders.

The Journal reported that the bank has also proposed that it repay the $45 billion in parts, beginning with the initial $20 billion it received at the height of last year's financial crisis. That plan, however, appears to hinge on whether it would get the bank out from under the pay czar's authority, the paper reported.

Regulators close seven more banks; toll rises to 106

2009-10-24T12:23:24Z

Regulators closed seven more banks on Friday, prompting the head of the Federal Deposit Insurance Corp. to record a video message reassuring depositors that their money was safe and that the financial system remained strong.

As the number of bank failures this year topped 100, FDIC Chairman Sheila C. Bair noted that most of the roughly 8,200 banks in the United States will survive.

"Some banks continue to face serious challenges, but the overwhelming majority will weather this economic storm,'' she said in her message, which was posted on the FDIC's web site and on Youtube.com.

The latest closings bring the total for the year to 106.

The biggest financial institution to fail this week was Bank of Elmwood, in Racine, Wis. Regulators in that state seized the bank and appointed the FDIC as receiver.

The FDIC arranged for Tri City National Bank, of Oak Creek, Wis., to assume Bank of Elmwood's five branches, its $273.2 million in deposits and its $327.4 million in assets.

Regulators closed three banks in Florida - Flagship National Bank, in Bradenton; Hillcrest Bank Florida, in Naples; and Partners Bank, also in Naples.

The FDIC arranged for First Federal Bank of Florida to assume Flagship National's four branches, $175 million in deposits and $190 million in assets. It agreed to share in any losses on $130 million of those assets.

Stonegate Bank, of Fort Lauderdale, Fla., agreed to take over the remains of Hillcrest Bank and Partners Bank. It acquired Hillcrest's six branches, along with its $84 million in deposits. Stonegate paid a premium of 0.5 percent for those deposits. It also bought $28 million of Hillcrest's $83 million in assets.

Stonegate absorbed Partners Bank's two branches, its $64.9 million in deposits and its $65.5 million in assets. The FDIC also picked Stonegate to take over another failed bank in July.

Georgia regulators shut down American United Bank in Lawrenceville, Ga., and appointed the FDIC as receiver. The FDIC enlisted Ameris Bank, of Moultrie, Ga., to take over American United's single branch, and its $101 million in deposits and $111 million in assets.

Ameris paid a premium of 1.02 percent for American United's deposits. The FDIC and Ameris entered into a loss-sharing deal on $92 million of the failed bank's assets.

The other two banks closed on Friday were First Dupage Bank, in Westmont, Ill., and Riverview Community Bank, in Stillwater, Minn.

The FDIC arranged for First Midwest Bank, of Itasca, Ill., to take over First Dupage's lone office, its $254 million in deposits and its $279 million in assets. The FDIC also agreed to share in any losses on $247 million of those assets. First Midwest paid a premium of 0.75 percent for the deposits.

Central Bank, of Stillwater, Minn., agreed to assume Riverview's two branches, $80 million in deposits and $108 million in assets. It entered into a loss-sharing deal on $75 million of those assets.

So far this year, the FDIC has tapped Central Bank to take over three failed Minnesota banks.

The FDIC said the seven new closings would cost its deposit insurance fund an estimated $404.7 million.

PNC Aims to Repay TARP in 15 Months

2009-10-23T18:23:15Z

PNC Financial Services Group Inc. will repay the $7.6 billion in bailout money it received within 15 months, according to a new report. The company had previously announced an intent to take as long as "a couple of years" to exit the program.

The latest announcement came as the bank released quarterly earnings data. It reported third quarter profits of $559 million and said its portfolio of bad loans was shrinking.

The company's stock rose more than 9 percent on the news, closing yesterday at $50.65.

PNC has been unique among larger banks in taking its time to repay money received under the Troubled Asset Relief Program. Most have rushed to redeem shares and warrants given the government in exchange for assistance, citing concerns over restrictions on executive pay and the distribution of dividends.

In order to exit the bailout program, the Treasury requires banks to prove they can survive without government aid and can raise money without government guarantees.

A stock offering has been a popular method of meeting both challenges, but PNC has explicitly rejected that option, saying it dilutes the holdings of existing shareholders. That position, however, has forced the bank to wait until its own capital position has sufficiently improved.

"You don't want the reason you're doing it to be simply because you don't like some of the actions coming out" of TARP, Rick Johnson, the bank's chief financial officer, said earlier this year. "What you want to do is have a good, logical approach to doing it, which is favorable to your shareholders."

Feinberg Orders 50 Percent Cuts in Executive Pay

2009-10-22T15:30:23Z

Executives at the largest firms to receive bailout assistance will see their compensation dramatically reduced, the Obama administration announced.

Under the plan, the top 25 executives at the seven firms to receive the most funding will earn approximately 50 percent of what they took home a year ago. In addition, the cash portions of their compensation will be slashed 90 percent, thereby more closely tying pay to performance.

The decision to cut salaries was not unexpected. After public outcry over massive bonuses being taken at firms dependent on public assistance, the administration appointed Kenneth R. Feinberg as pay czar, giving him power to set salaries for the top bailed-out firms.

Although his official report is due in the next few days, his informal efforts have already borne results. Citigroup Inc., facing pressure from Feinberg, agreed to sell a unit headed by a trader who stood to make $100 million rather than face a potential lawsuit if his salary was slashed.

And Kenneth D. Lewis, the chief executive of Bank of America Corp. who recently announced his resignation, agreed to forgo his own salary and bonus for the year after discussions with Feinberg.

In his report, Feinberg is also expected to impose limitations on company perks. According to the New York Times, executives at the top seven firms will have to receive the permission of the government to accept more than $25,000 worth of such things as country club memberships or company-issued cars.