Treasury To Auction Its TARP Investment In Community Banks

Kim Souza with our content partner, The City Wire, reports:

Four local banks still on the hook for TARP payments stand to have the preferred shares now owned by the U.S. Treasury Department pooled and auctioned to the highest bidder in the coming months.

Signature Bank, Chambers Bank, Community First and Metropolitan National are four of local institutions out of the seven Arkansas banks that have not yet repaid the federal government for the investment it made in 2009 as part of the Capital Purchase Plan, a TARP initiative.

While there is no deadline for repayment, the Treasury Department has made no secret that it’s ready to rid itself of those investments, which have yielded about $19 billion in profits to date.

In a June 19 letter, the Treasury informed about 200 banks that they are being considered for a series of pooled auctions, the first of which will take place in fall.

Gary Head, CEO of Signature Bank, said he got the letter that detailed the Treasury’s intentions earlier this week.

“It doesn’t matter to me if they sell or not. We do not regret taking the TARP money it was a very cheap cost for capital at 5% and I am in no hurry to buy back those shares with the uncertainty mounting in world’s financial markets,” Head said.

The Treasury said in a statement the 200 banks receiving the letters this week represent about $2 billion in outstanding shares owned by the federal government. He said these banks are smaller institutions that find more difficulty raising private capital.

Garland Binns, banking attorney with Dover Dixon and Horne in Little Rock, said “Prior to the pooling of the securities, banks will have the opportunity to go ahead and redeem their shares at a discount. Or banks can allow investors of their choice to bid at discount on their behalf, which would also eliminate all TARP like those on executive compensation.”

It is important to note that banks would have to get regulatory approval to bid on their own shares.

That might be difficult for Signature, Chambers, Metropolitan National and One Bank & Trust as each bank is under strict enforcement actions with federal regulators since taking the capital in 2009.

The Treasury said banks that opt-out of the pooled purchases and still designate a single outside investor to bid on their remaining shares must do so by Aug. 6 and they will be subject to a minimum bid set by the Treasury.

The auctions are the Treasury’s best chance to unwind TARP in a timely manner. Banks were asked earlier this year to submit plans for repayment, which it says can still be considered if received in the near term.

Souza has more details on the TARP auction action at this link.