As noted by the Wall Street Journal (subscription required), a steady stream of small banks are still lining up for government money.
Since May 31, 20 small banks have received a total of $164.1 million in taxpayer-funded capital, according to the Treasury’s latest available figures. Half of those banks got the money in the same week that 10 big financial institutions gave theirs back.
Analysts see no end in sight to the trend. The recession and borrowers are squeezing most of the 8,200 federally insured commercial banks and savings institutions in the U.S., so even a dollop of TARP funds could make a difference. Some banks are turning to the government to fill a void left by investors who are leery about pouring money into the sector, despite the rebound by bank stocks since early March.
Meanwhile, the rules and stigma of TARP that turned some executives such as J.P. Morgan Chairman and CEO James Dimon against the program are irrelevant to small institutions.
Their employees usually don’t fly on corporate jets or collect hefty bonuses that trigger outrage from taxpayers, customers and Congress. And curbs on dividend payments are a modest price to pay for greater assurance that the banks can plow ahead with their core mission to gather local deposits, lend them nearby and support local charities, some recent TARP recipients said.
It’s certainly a stretch to say the executive compensation restrictions are “irrelevant” to small institutions, but community banks generally don’t have the excesses that have drawn public and congressional scorn. With the deadline for smaller community banks to apply to participate under the TARP Capital Purchase Program extended until November 9, 2009, many institutions are taking a fresh look as to whether to apply, even as larger institutions are making a decision as to whether to seek to redeem the TARP investment they’ve already received.
Even as five of the eight initial Capital Purchase Program recipients have redeemed their TARP investments with the Treasury, hundreds of applications are still being processed, as reported by the American Banker on June 26, 2009 (subscription required).
The Government Accountability Office said in a June 17 report that the Treasury had received more than 1,300 applications from federal regulators as of June 12, and that fewer than 100 were still awaiting a decision. The GAO also said bank regulators are reviewing another 220 applications that have not yet been forwarded to the Treasury.
Of the banking agencies, only the Office of Thrift Supervision details the Tarp application process. Of the roughly 800 companies it oversees, the OTS said 302 have applied for capital injections. Forty-nine have gotten the money and 140 have withdrawn their applications. Another 71 are in some state of review while 42 have yet to be considered.
The Treasury may emphasize that “fewer than 100 are still awaiting a decision,” but that excludes over 200 applications that are haven’t even made it to the Treasury yet. All told, there are probably 300 applicants that haven’t been told whether they are eligible to receive a TARP investment.
On June 26, 2009, the Treasury announced its policy with regard to the repurchase or other disposition of the warrants it received from exchange-traded companies under the TARP Capital Purchase Program.
Under the terms of the Capital Purchase Program contract, publicly-traded institutions that have repaid the Treasury’s TARP investment have 15 days following repayment to make a determination of the “fair market value” to repurchase the warrants as well. This determination is made by the institution’s Board of Directors, acting in good faith on the opinion of an independent banking firm. The Treasury then has 10 days to either accept the “fair market value” offered by the company, or will initate the three appraiser process established in the original contract to determine a final “fair market value.”
If a company decides not to repurchase the warrants, the Treasury intends to sell the warrants through an auction process over the next few months. The Treasury is in the process of establishing guidelines for these auctions. Treasury also has the authority to dispose of warrants held by companies that have not redeemed their TARP investment generally (subject to a requirement to retain half the warrants through December 31, 2009). Although the Treasury’s announcement of an upcoming auction does not specifically differentiate between companies that have and have not redeemed the TARP investment, presumably the upcoming auction is intended only for institutions that have elected not repurchase the warrants after redeeming the TARP investment.
SEC Publishes Proposed Rules Allowing Shareholder Access to Company Proxy Materials
On June 10, 2009, the Securities and Exchange Commission (the “SEC”) published the 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. As reported in our May 21 Client Bulletin, the proposal was adopted by a divided 3-2 vote at an SEC open meeting.
For more information, read the client alert published by Bryan Cave LLP’s Corporate Finance and Securities Client Service Group on June 22, 2009.
Taiwan Poised to Accede to Government Procurement Agreement at the WTO
On July 15, 2009, Taiwan will become the 41st member of the Government Procurement Agreement (GPA) of the World Trade Organization (WTO). Taiwan’s President Ma Ying-Jeou signed the instrument of accession to the GPA on June 8, 2009, thus clearing the final hurdle for Taiwan to become a member of this plurilateral accord. On June 15, 2009, Taiwan’s delegation to the WTO deposited the accession instrument with the WTO Secretariat.
For more information, read the client alert published by Bryan Cave LLP’s International Trade Client Service Group on June 23, 2009.
The Peabody award-winning Onion News Network provides this exclusive look at the administration’s latest plan to save the U.S. economy.
If unsuccessful (despite the testimonials), we expect the Treasury’s next move may be to “Get Cash Now” through conversion of the TARP preferred structured settlements using JG Wentworth.
As part of the American Recovery and Relief Act of 2009 (a.k.a. the stimulus bill), Congress also adopted the Employ American Workers Act. Under the Employ American Workers Act, TARP recipients are subject to additional requirements if they seek to make a new hire of a foreign national to work under an H-1B petition. While this requirement is unlikely to affect most community bank recipients, it is an important restriction to keep in mind, especially for institutions with an international or ethnic-group focus.
The requirements of the Employ American Workers Act took effect on February 17, 2009, and remain effective until the earlier of: (a) redemption of any TARP investment (exclusive of any outstanding warrants); and (b) February 17, 2011.
Any TARP recipient seeking to hire an H-1B worker is required to make the following attestations to the U.S. Department of Labor:
- it has taken good faith steps to recruit U.S. workers using industry-wide standards and offering compensation that is at least as great as those offered to the H-1B nonimmigrant;
- it has offered the job to any U.S. worker who applies and is equally or better qualified for the job that is intended for the H-1B nonimmigrant;
- it has not “displaced” any U.S. worker employed within the period beginning 90 days prior to the filing of the H-1B petition and ending 90 days after its filing. A U.S. worker is displaced if the worker is laid off from a job that is essentially the equivalent of the job for which an H-1B nonimmigrant is sought; and
- it will not place an H-1B worker to work for another employer unless it has inquired whether the other employer has displaced or will displace a U.S. worker within 90 days before or after the placement of the H-1B worker.
We have recently had the opportunity to ask officials with the Treasury Department several questions regarding the new interim final executive compensation rules for TARP recipients. While answers weren’t available for every questions, the Treasury is aware of some of the open issues associated with the regulations and appears to be diligently at work to address those questions.
The Treasury was quick to admit a technical glitch with regard to the definition of “most highly compensated employees.” The definitions currently exclude senior executive officers from a determination of the most highly compensated employees. Accordingly, a technical reading of the regulations would, for example, apply the bonus restrictions for TARP recipients of less than $25 million to the most highly compensated employee who is not an executive officer, creating the absurd result that the CEO could receive a bonus, while the sixth highest paid employee could not. The Treasury has confirmed that this reading of the regulation, while technically correct, was not intended. A technical correction is forthcoming, but the Treasury would expect TARP recipients not to pay any bonus to the most highly paid employee (whether or not they are also a senior executive officer) and will not object to bonus payments to the sixth most highly paid employee.
The Treasury has also confirmed that it does not intend for private companies (those without securities registered with the SEC) to be required to comply with the say-on-pay provisions. The framework for the Treasury’s thoughts appear to be general deferral to the SEC, but with the understanding that the SEC generally does not have regulatory oversight of the proxies of private institutions. Given the uncertainty in the regulations, further clarification or guidance may be forthcoming.
On June 23, 2009, the FDIC voted to seek comment on whether to extend the Transaction Account Guarantee under beyond its current expiration date of December 31, 2009. The Transaction Account Guarantee provides unlimited deposit insurance for funds held in noninterest-bearing accounts (as well as IOLTA accounts and certain NOW accounts). The Transaction Account Guarantee is part of the FDIC’s Temporary Liquidity Guarantee Program.
The FDIC proposal offers two alternatives:
- allow the guarantee to expire as scheduled on December 31, 2009; or
- extend the guarantee through June 30, 2010, with increased fees.
If the guarantee is allowed to expire, then insurance limits will revert to the $250,000 threshold.
If the guarantee is extended for six months through June 30, 2010, then the FDIC proposes to also increase the fee to 25 basis points annualized (from the 10 basis points currently charged). In light of this increase, the FDIC proposes that it would give all institutions a single opportunity to opt out of the extended guarantee program (and thereby avoid the increased cost).
On June 16, 2009, the Treasury announced the completion of the thirty-first round of TARP Capital infusions. The Treasury purchased a total of approximately $39 million in securities from 7 financial institutions on Friday, June 12, 2009, and has now invested in 624 institutions, totaling approximately $199.5 billion.
River Valley Bancorporation, Wausau, Wisconsin, received the largest infusion, $15 million. SouthFirst Bancshares, Inc., Sylacuaga, Alabama, received the smallest infusion, $2.8 million.
Of note in this round, three institutions took advantage of the TARP Capital expansion for small community banks: First Vernon Bancshares, Virginia Company Bank, and First Financial Bancshares. Under the expansion program, First Vernon and First Financial received investments of approximately 5% of their risk-weighted assets and Virginia Company received an investment of approximately 4% of its risk-weighted assets, while under the normal TARP Capital terms, they would have been eligible to receive only 3% of their risk-weighted assets.
As of June 16, 2009, twenty-two institutions have re-paid approximately $1.9 billion, and Treasury’s outstanding investment equals approximately $197.6 billion. (more…)
On June 9, 2009, the Treasury announced the completion of the thirtieth round of TARP Capital infusions. The Treasury purchased a total of approximately $40 million in securities from 3 financial institutions on Friday, June 5, 2009, and has now invested in 617 institutions, totaling approximately $199.4 billion.
First Trust Corporation, New Orleans, Louisiana, received the largest infusion, $18 million. Covenant Financial Corporation, Clarksdale, Mississippi, received the smallest infusion, $5 million.
Of note in this round, OneFinancial Corporation of Little Rock, Arkansas, became the first institution to receive a TARP Capital investment under the expansion for small community banks. Under the expansion program, OneFinancial received an investment of $17.3 million (approximately 5% of its risk-weighted assets), while under the normal TARP Capital terms, OneFinancial would have only been eligible to receive approximately $10.4 million (3% of risk-weighted assets).
On June 3, 2009, two institutions redeemed securities from the Treasury: HF Financial Corp. and Valley National Bancorp. HF Financial redeemed all of their TARP preferred stock for $25 million, while Valley National became the first institution to redeem only a portion of its preferred stock – $75 million of the $300 million original investment amount. As of June 9, 2009, twenty-two institutions have re-paid approximately $1.9 billion, and Treasury’s outstanding investment equals approximately $197.5 billion.