Treasury Asks Banks To Submit TARP Repayment Plans

Seven banks in Arkansas are still on the hook to the Treasury Department for more than $93 million they took as part of a government initiative in early 2009 known as the Troubled Asset Relief Program, or TARP.

Kim Souza with our content partner, The City Wire, has a complete report here.

Metropolitan National, Signature Bank of Fayetteville and Chambers Bank are among the local statewide institutions that have yet to repurchase the preferred stock they issued to the Treasury under the TARP’s Capital Purchase Program.

Elsewhere in the state, Community First of Harrison, One Financial and Riverside Bank in Little Rock and Corning Savings and Loan round out the balance of Arkansas-based banks being asked to step up repayment plans.

NO PAY BACK REQUIREMENT
While the funds were designed to help stabilize a wobbly financial sector, many of the smaller community banks who took part have not been able to repay the funds. The seven Arkansas banks are among 380 institutions to recently get notices from the Treasury Department about its new effort to wind down the Troubled Asset Relief Program.

In November Sloan Deerin, director of the Capital Purchase Program, sent a letter to institutions saying the Treasury hired investment advisory firm Houlihan Lokey Capital to explore options for the management and ultimate recovery of the remaining CPP investments. There were 720 banks that originally took part in the program.

Garland Binns, a banking attorney with Dover Dixon and Horne in LIttle Rock, said the Treasury cannot require banks to repay their TARP investments, especially since regulators have to first give the okay.

He said that the 5% dividend rate is ridiculously cheap for equity capital. That rate will escalate to 9% by the fall of 2013. Binns said that could provide impetus for banks to work on settling their tabs with the Treasury.

TARP CRITICISM, PROFITS
John Dominick, banking professor and analyst at the University of Arkansas, said TARP has taken on a negative connotation being linked to a Wall Street bank bailout, when in reality it offered a capital boost to hundreds of community banks. He said the problem with the program was summed up nicely in recent report by the TARP’s special inspector general.

The report criticized the Treasury for not having an exit path for small and medium-sized banks, which comprise the majority of the institutions still in the program. One concern voiced in the report was for banks to put in place an exit strategy before the dividend hike next year. As of Jan. 10, the Treasury reports nearly half of the community banks in the program are already not paying the 5% dividend.

Dominick said the Treasury has already turned a profit for its TARP investments. So far the Treasury’s $250 billion investment into the banking sector has been recouped with $258.44 billion in total payments, according to the Treasury’s monthly report to Congress dated Jan. 12.

The City Wire’s Souza has more at this link, including comments and positions from several bank executives, as well as graphs outlining current bank TARP commitments and paybacks from other institutions that borrowed.