On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point special assessment and authorizing the FDIC to impose additional special assessments of 5 basis points, if necessary. The initial special assessment and any additional special assessment will be based on an institution’s assets minus Tier 1 capital as of June 30, 2009. This final rule differs significantly from the interim rule that FDIC issued on March 2, 2009.
The interim rule contemplated a 20 basis point special assessment, based on an institution’s deposits, which is the assessment base used for the regular quarterly risk-based assessments. The interim rule also contemplated imposing additional special assessments of up to 10 basis points at the end of each remaining calendar quarter of 2009.
The final rule lowered the initial special assessment from 20 to 5 basis points, and any additional special assessment from 10 to 5 basis points, but changed the assessment base from deposits to assets minus Tier 1 capital. The memorandum from the FDIC’s director of the insurance and research division indicates that the “departure from the regular risk-based assessment base is appropriate in the current circumstances because it better balances the burden of the special assessment.”
On May 20, 2009, President Obama signed the Helping Families Save Their Homes Act of 2009 (Senate Bill 896). Among other things, the Act:
- extended the $250,000 deposit insurance limit through December 31, 2013;
- extended the length of time the FDIC has to restore the Deposit Insurance Fund from five to eight years;
- increased the FDIC’s borrowing authority with the Treasury Department from $30 billion to $100 billion;
- increased the SIGTARP’s authority vis-a-vis public-private investment funds under PPIP (including the implementation of conflict of interest requirements, quarterly reporting obligations, coordination with the TALF program); and
- removed the requirement, implemented by the American Recovery and Reinvestment Act of 2009, for the Treasury to liquidate warrants of companies that redeemed TARP Capital Purchase Program preferred investments. The Treasury is now permitted to liquidate such warrants at current market values, but is not required to do so.
This extension does not affect the Transaction Account Guarantee provided by the FDIC’s Temporary Liquidity Guarantee. The Transaction Account Guarantee, which provides an unlimited guarantee of funds held in noninterest bearing transaction accounts, is still scheduled to expire on December 31, 2009.
On May 19, 2009, the Treasury announced the completion of the twenty-seventh round of TARP Capital infusions. The Treasury purchased a total of approximately $108 million in securities from 14 financial institutions on Friday, May 15, 2009, and has now invested in 594 institutions, totaling approximately $199.2 billion.
Mercantile Bank Corporation, Grand Rapids, Michigan, received the largest infusion, $21.0 million. Riverside Bancshares, Inc., Little Rock, Arkansas, received the smallest infusion, $1.1 million.
On May 13, 2009, Alliance Financial Corp. and Texas Capital Bancshares, Inc. redeemed their securities from the Treasury for $125 million and $75 million, respectively. To date, fourteen institutions have re-paid approximately $1.3 billion, and Treasury’s outstanding investment equals approximately $197.9 billion.
SEC Announces Proposed Rules Allowing Shareholder Access to Company Proxy Materials
On May 20, 2009, the Securities and Exchange Commission announced proposed new rules that would, under certain circumstances, require companies to include in their proxy materials nominations for election as directors submitted by eligible shareholders.
For more information, read the client alert published by Bryan Cave LLP’s Corporate Finance and Securities Client Service Group on May 21, 2009.
Supreme Court Narrows Federal Superfund Liability
In a very recent two-part CERCLA decision favorable to the industry, the U.S. Supreme Court on May 4, 2009: (1) narrowed the category of companies who are liable as “arrangers” for disposal under CERCLA; and (2) broadened a liable company’s “divisibility” defense to CERCLA’s presumptive “joint and several” liability.
For more information, read the client alert published by Bryan Cave LLP’s Environmental Client Service Group on May 7, 2009.
As we have previously discussed, the Term Asset-backed-securities Loan Facility (“TALF”) program of the Federal Reserve and US Treasury has piqued the interest of investors world-wide. We are receiving multiple inquiries every week about how best to position our clients to benefit from the government program. If you’re reading this, you likely already know that the TALF program was intended to create an artificial market to replace the “shadow market” of securitized loans that had fueled the US economy for the past decade, and which was largely responsible for its crash.
Since the other similar, and more recently announced PPIP program, has yet to gain any traction and which still raises far more questions than answers, investors seem more ready and willing to test the TALF waters. It has been reported that the six TALF-eligible transactions announced for the May auction have been six to twelve times oversubscribed — roughly double the rate reported for the previous month’s auction.
As we have seen with TARP, the federal government has not been shy in changing the rules of its games in mid-play. The potential benefits of the TALF program, namely risk limited leverage in the form of non-recourse 88%-95% financing, and attractive potential returns, which many estimate to be in the 15%-30% range, are seen by many to outweigh the risks that the uncertain parameters of the program pose.
On May 14, 2009, the Treasury and the Department of Housing and Urban Development announced updates to the Making Home Affordable Program. These updates detail Foreclosure Alternatives Incentives and Home Price Decline Protection Incentives.
Foreclosure Alternative Program. The Foreclosure Alternative Program provides incentives to mortgage servicers to pursue short sales of homes or deeds in lieu of foreclosure. In either case, the incentives are aimed at helping homeowners who can no longer afford to stay in their homes by allowing them to avoid foreclosure and relocate to a home that they can afford.
The updates indicate that homeowners who satisfied the minimum eligibility requirements for a modification under the Program but who could not qualify for a modification will be eligible for the Foreclosure Alternative Program. For example, a homeowner may meet all eligibility requirements yet the servicer determined that the borrower would not be able make payments on a loan as modified under the Program; in this case, the homeowner may be eligible for the foreclosure alternative. Further, homeowners who received a modification but who were unable to sustain payments under that modification will be eligible for the Foreclosure Alternative Program.
The front cover of the May 17, 2009 issue of the New York Times Magazine asked “Are Small Banks the Future?“ As noted in the article, lending may have slowed at the largest banks, but at the other end of the financial system, there are 8,500 community banks, and most remain very strong.
In the midst of the worst banking crisis since the Great Depression, community banks have generally fared well. That’s because they typically shunned the lending practices that led to high default rates. They rarely participated in the securitization of loans, credit-default swaps and other overvalued financial products that put the global financial system in crisis. Instead, they stuck to the fundamentals. They considered the character and history of their borrowers. They required collateral. Without community banks, the current financial crisis would be a lot worse.
The focus of the mainstreet press, and the Treasury Department, continues to be on the largest institutions, whether it be the initial nine TARP Capital recipients, or the nineteen that underwent the stress test. There is some rationality for this focus, the majority of assets, deposits and loans are held by these institutions. But just like small businesses generally, community banks play a critical role in the American economy.
Community banks may have weathered the current crisis better than larger banks, but they remain an American oddity. Most other countries have 5 or 10 national banks, and when they get in trouble, as they did in Iceland, it can be devastating. The balance in this country is tipped toward big institutions (the four largest control half the assets held by American banks and 40 percent of all deposits), but community banks still make 43 percent of all small business loans under $1 million. Since January 2008, fewer than 1 percent of all community banks have failed.
On May 12, 2009, the Treasury announced the completion of the twenty-sixth round of TARP Capital infusions. The Treasury purchased a total of approximately $42 million in securities from 7 financial institutions on Friday, May 8, 2009, and has now invested in 580 institutions, totaling approximately $199.1 billion.
On May 13, 2009, Secretary Geithner announced that Treasury plans to re-open the application window for participation in the TARP Capital Purchase Program banks with total assets under $500 million, and to increase the amount that can be invested from 3% of risk-weighted assets to 5% of risk-weighted assets.
Using the proceeds of the repayments we expect to receive from some of the largest banks, we plan to re-open the application window for banks with total assets under $500 million under the Capital Purchase Program, and raise from 3% of risk-weighted assets to 5% the amount for which qualifying institutions can apply. This applies to all term sheets – public and private corporations, Subchapter S corporations, and mutual institutions. Current CPP participants will be allowed to reapply, and will have an expedited approval process.
In addition, we will extend the deadline for small banks to form a holding company for the purposes of CPP. Both the window to form a holding company and the window to apply or re-apply for CPP will be open for six months.
On May 5, 2009, the Treasury announced the completion of the twenty-fifth round of TARP Capital infusions. The Treasury purchased a total of approximately $45.5 million in securities from 7 financial institutions on Friday, May 1, 2009, and has now invested in 573 institutions, totaling approximately $199.1 billion.
Village Bank and Trust Financial Corp., Midlothian, Virginia, received the largest infusion, $14.7 million. CenterBank, Milford, Ohio, received the smallest infusion, $2.3 million.
Of note in this twenty-fifth round, two subchapter S institutions received TARP Capital investments – OSB Financial Services, Inc. ($6.1 million) and Security State Bank Holding Company ($10.8 million).