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Public vs. Private, Round 2

November 24, 2008

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Public vs. Private, Round 2

November 24, 2008

Authored by: Robert Klingler

As we’ve previously noted here, here and here, we’re not big fans of the Treasury’s definition of what constitutes a publicly traded company under the TARP Capital program.  The Treasury’s definition provides two tests, one of which is a subset of the other, and doesn’t specify whether both tests or either test must be met.

Non-Exchange-Listed Companies = Private

While speaking to an official with the Federal Reserve Bank of Atlanta today, we were told that: (i) both tests have to be met; (ii) the Over-the-Counter Bulletin Board and Pinksheets were NOT considered “national exchanges,” and therefore companies listed on such would be considered private; and (iii) they believe that all applications filed by companies which have asserted public status with an Over-the-Counter Bulletin Board or Pinksheets listing have been sent back to be reconsidered as private companies.

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Nuggets from the Second Tranche Report to Congress

November 24, 2008

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On November 24, 2008, the Treasury published its Second Tranche Report to Congress, for the period through November 14.  The appendices to the report are available here.  These reports are required under Section 105(b) of the Emergency Economic Stabilization Act of 2008, and are published on the Treasury’s website.

The Report confirms that the purchase of $40 billion in preferred shares from AIG was under the Systemically Significant Failing Institutions Program (SSFI) rather than the TARP Capital Purchase Program (TARP Capital).  The total committed under the TARP Capital program was $158.5 billion as of November 14, 2008.  This confirms our previous analysis.

The Report states that all commitments thus far under the TARP Capital program have been with financial institutions whose stock is traded on national securities exchanges.  As we’ve previously discussed, this is not true, as one of the recipients of the November 14 TARP Capital infusions is traded on the Over-the-Counter Bulletin Board.

The Report indicates that Treasury has established a streamlined evaluation procedure that has resulted in the federal banking agencies using a standardized process to review all applications to ensure consistency.  Treasury states that gives considerable weight to the recommendations of the federal banking agencies.

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How Much TARP Capital Money is Left?

November 23, 2008

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How Much TARP Capital Money is Left?

November 23, 2008

Authored by: Robert Klingler

When the Treasury announced the TARP Capital program on October 14, 2008, the Treasury indicated that it had set aside $250 billion of the $700 billion authorized for the overall Troubled Asset Relief Program.  The $250 billion TARP Capital program was for the purchase of senior preferred stock, with $125 billion designated for the initial participants and $125 billion for the remainder of the banking industry.

As of November 20, 2008, the Wall Street Journal’s list of participants in the TARP Capital program identifies a total of $232.9 billion that has been completed, applied for, or publicly announced as pending.  However, the Wall Street Journal’s list includes the $40 billion in senior preferred stock to be purchased from the American International Group (AIG), as announced by the Treasury on November 10, 2008.

AIG’s $40 billion investment is part of the overall TARP Program, but is not part of the $250 billion set aside for the TARP Capital program.  As a result, the Wall Street Journal’s number should be reduced to $192.9 billion, indicating that there is approximately $57.1 billion remaining under the TARP Capital program (assuming all of the applicants on the WSJ’s list are ultimately approved).

The application by several large insurance companies to become bank holding companies in light of recent thrift acquisitions increases the industry’s total risk weighted assets, and may make TARP Capital more scarce.  However, the Treasury still has an additional $60 billion that it can invest without further Congressional approval.  With the Treasury’s announcement that it is unlikely to purchase assets directly, the Treasury may elect to expand the $250 billion TARP Capital program if there is sufficient demand from eligible institutions.

Update 11/24/08 – The U.S. Government’s additional support of Citigroup is similarly not part of the $250 billion set aside for TARP Capital, although portions of the assessment are out of the overall TARP program.  Specifically, $5 billion of the asset guarantee and the $20 billion preferred stock investment are covered by TARP.  As a result, the Treasury now has $35 billion that it can invest or otherwise use without further Congressional approval.

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FDIC Publishes Final Rule on Temporary Liquidity Guarantee Program

November 23, 2008

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On November 21, 2008, the FDIC approved the final rule regarding the Temporary Liquidity Guarantee Program.  The FDIC also held a teleconference on the final rule (with 2,100 participants) summarizing the changes, which will be available on the FDIC’s website.

There are important changes from the FDIC’s interim rule, including: (i) the exclusion of short term borrowings (30 days or less) and an alternative minimum cap for guaranteed debt under the Senior Unsecured Debt Guarantee portion of the Program; and (ii) the inclusion of IOLTA and NOW accounts in the Transaction Account Guarantee portion of the Program.

We continue to expect that all banks will decide to remain in the Transaction Account Guarantee portion of the Program, but, with the revised terms, we believe community banks will need to closely examine whether to participate in the the Senior Unsecured Debt Guarantee portion of the Program.

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Do Private Companies Need to Amend their Applications?

November 19, 2008

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In light of the new term sheet for non-public institutions, we have been asked by several clients whether they need to amend their application if they have already submitted applications to their federal regulators.

At this time, unless the regulator specifically asks that you file an amendment, we do NOT believe an amendment should be necessary.  The Treasury has not updated its application form (available online directly from the Treasury in PDF format, or from Powell Goldstein in Word format) and the application does not contain any information that would differ because the company is applying under the new non-public company term sheet.

We are aware of one instance in which the regulators specifically requested an amendment, but in that case the applicant also desired to increase the amount of TARP Capital they were applying for, which would seem to independently necessitate an amendment.

Update 11/20/2008 – An FDIC representative confirmed to one of our privately-held clients that they did NOT need to file a new application or amend their application, but that they should confirm to the regulators that they have reviewed the new Term Sheet.

Update #2 11/20/2008 – A Federal Reserve Bank of Atlanta representative stated that they expect that private banks WILL NEED to make some kind of amendment, but they don’t know what form that amendment will take.  They expect to receive guidance later this week from D.C., and will inform applicants accordingly.

Update #3 11/21/2008 – The representative of the Federal Reserve Bank of Atlanta has informed us that the staff at the Board of Governors has advised that there is NO need to amend the application to reflect the recent terms announced for private companies.  The documents the Treasury will require participants to sign in order to participate will incorporate all of the changes, terms, conditions, etc.

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TARP Capital Spreadsheet for Private Banks

November 19, 2008

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Our TARP Capital Spreadsheet for Private Banks provides a basic analysis of the terms of TARP Capital under the newly announced term sheet for non-public institutions.  By adjusting the Risk Weighted Assets and percentage of Risk Weighted Assets that an institution is requesting in TARP Capital (minimum 1% and maximum is 3%), an institution can review the estimated annual interest costs of the Preferred stock and the Warrant Preferred stock, as well as the ultimate redemption cost.

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What is "Publicly Traded?"

November 17, 2008

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What is "Publicly Traded?"

November 17, 2008

Authored by: Robert Klingler

1st Financial Services Corporation’s inclusion on the Treasury’s Transaction Report, as an OTCBB company, appears to show that the Treasury is NOT requiring that companies be traded on a national securities exchange in order to participate in the TARP Capital program for publicly traded companies.  The inclusion would also suggest that any company that is required to file periodic reports under the federal securities law: (a) is considered a “publicly traded” company, (b) had a deadline to apply of November 14, 2008, and (c) is not eligible to participate in the newly announced TARP Capital program for private companies.

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Round Two of TARP Capital Injections

November 17, 2008

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Round Two of TARP Capital Injections

November 17, 2008

Authored by: Robert Klingler

On November 17, 2008, the Treasury published an updated Transaction Report, showing 21 new TARP Capital transactions that closed on November 14, 2008, bringing the total number of completed transactions to 30, with a total outlay of $146.8 billion (exclusive of the settlement of Merrill Lynch’s investment of $10 billion, which is pending its merger with Bank of America).

The second round includes many of the nation’s next largest banks, including BB&T, Capital One, Comerica, First Tennessee, Huntington, KeyBank, M&I, Northern Trust, Regions, SunTrust, U.S. Bancorp, and Zions.

The second round also included some smaller community banks:

  • Bank of Commerce Holdings (Redding, California) is the parent holding company of Redding Bank of Commerce, Roseville Bank of Commerce, Sutter Bank of Commerce, and Bank of Commerce Mortgage, with total assets of $618 million as of December 31, 2007.  Bank of Commerce Holdings is traded on the NASDAQ Global Market under the trading symbol BOCH.
  • 1st Financial Services Corporation (Hendersonville, North Carolina) is the parent holding company of Mountain 1st Bank & Trust Company, with total assets of $606 million as of December 31, 2007.  1st Financial Services Corporation is traded on the NASDAQ Over-the-Counter Bulletin Board under the trading symbol FFIS.
  • Broadway Financial Corporation (Los Angeles, California) is the parent holding company of Broadway Federal Savings and Loan Association, with total assets of $357 million as of December 31, 2007.  Broadway Financial Corporation is traded on the NASDAQ Capital Market under the trading symbol BYFC.
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New Term Sheet for Private Banks

November 17, 2008

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New Term Sheet for Private Banks

November 17, 2008

Authored by: Robert Klingler

The Treasury has published a new Term Sheet and FAQ for banks that are not publicly traded.

We will provide additional analysis over the next several days, but here are some highlights:

  • The new Term Sheet applies to all non-public qualifying financial institutions, excluding S Corporations and mutual organizations.  The Treasury has NOT clarified its prior statement regarding the definition of “publicly traded” companies to clarify whether such companies must be traded on a national securities exchange or whether being obligated to file periodic reports is sufficient to constitute a publicly traded company.
  • Investment structures for S Corporations and mutual organizations are still “under consideration,” and the announced deadline does not apply to S Corporations or mutual organizations.
  • The deadline for applications for private C Corporations is Monday, December 8, 2008.
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