“We’re going to find out who are the strongest kids on the block and who are not,” said Bert Ely, a longtime banking analyst.
Eagle Eyes here. Yesterday, the Treasury Department gave the O.K. to ten of the nation’s seventeen largest banks to repay funds received from the Troubled Asset Relief Program (”TARP”). Former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke had forced the ten to accept bailout cash last fall, even though they may not have needed it, in a gambit to obscure the identity of the weaker, actual intended targets of the prorgam (specifically Citigroup and Bank of America), avoid runs on those banks, and preserve the nation’s teetering financial system.
Smaller, regional and local banks, also struggling in the face of surging loan and investment losses, lobbied hard and were subsequently included in the program. On February 6 of this year, Richmond-based First Market Bank received $33.9 million in bailout greenery.
Almost immediately after the worst of the financial storm passed, stronger banks chafed under the increased government scrutiny on executive pay and risk-taking and fought hard to gain clearance to repay the bailout money:
[Jamie] Dimon, calling money received through the Troubled Asset Relief Program “a scarlet letter” and “the TARP baby,” said on a conference call with reporters today that the New York- based bank is awaiting guidance from the U.S. Treasury Department. “We could pay it back tomorrow,” he said.
BB&T CEO Kelly King told analysts the TARP funds are “destructive” to the company.
“Our plan is to repay the [TARP funds] as soon as it is humanly possible,” Kelly said. “It creates excessive controls, it has a negative impact on our people and our strategies” and “it runs a great risk of politicizing the lending process, which is very unhealthy.”
“The company believes it has sufficient capital and access to capital to operate without the TARP money,” CEO W. Moorhead Vermilye said in a statement released last month when Shore Bancshares applied for permission to repay TARP funds.
In the March press release, Vermilye echoed that sentiment, saying: “It has become clear to us that the public, including many members of Congress, view institutions that participated in Tarp as having done so because they are weak, and not because they wanted to do their part to foster economic recovery.”
Weaker banks, with too little capital to pay back TARP, instead fired up the PR machine (I’m guessing “Troubled” is not a word loved by their marketers):
First Market gets TARP infusion of $33.9 million
“The TARP funds are meant for healthy banks,” said Katie Gilstrap, spokeswoman for First Market. “First Market has a very conservative credit culture. We have never been involved in subprime or risky loans.”
Bailout’ it’s not, Virginia bankers say
Virginia bankers cringe at the word “bailout.”
Many have applied for money that the federal government began offering last fall to boost lending in frozen credit markets.
But banking officials don’t want to be included with AIG Inc. and Citigroup Inc., or the automobile-manufacturing industry, as beholden to federal taxpayers for their financial prosperity…
However, now that certain banks have been deemed strong enough to return bailout funds (about two dozen smaller banks have already mailed Timmy G. the check) there is an easy way to accurately differentiate between “good” and “bad” banks. As a result, there will be tremendous pressure on banks to repay in order to avoid being lumped in the latter category. We should all pay close attention to those that cannnot.
It will be very interesting to see if First Market and its new suitor Union Bankshares (which received $59 million in TARP) can return the money. I’m guessing they don’t have the quan.
First Market has operated on a relatively thin capital base since a 2005 reorganization that saw Markel Corp replace SunTrust as a minority owner. Losses on loans and investments eroded their capital further.
And the news isn’t getting any better. First Market’s major lines of business include construction loans, home equity lines of credit, commercial real estate loans and auto loans, all showing significant deterioration at First Market and industrywide. Last week, large local builder Prospect Homes declared bankruptcy. Prospect owed First Market $4.2 million, or about 5% of First Market’s pre-TARP equity capital. Ouch! A few more losses like that one and they might have been graced by a late Friday knock at the door.
But, of course, Jim Ukrop leads a charmed life. With the taxpayers’ $33.9 million in his vault, he can keep the doors open and push though a sale to Union Bankshares that will reap him and his family somewhere on the order of $60 million+. But, if First Market is not going to pay TARP back, at least he can spare us all the “healthy bank” charade.
P.S. How about Richmondbizsense.com needing only about a year to take over as the source for local business news - well done guys!
P.S.S. Wouldn’t it be nice if we could all have a major newspaper give us tons of free advertising under the guise of journalism like this this this (only 6 sold?!) and this?
P.S.S.S. Ukrops Supermarkets only made a $465k profit last quarter and has about $100 million in debt. Better sell it fast…
P.S.S.S.S. Anthony Markel just sold more than $19 million of his Markel stock. Should you sell yours?
