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FDIC Extends Opt Out Deadline for Temporary Liquidity Guarantee Programs

November 6, 2008

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On November 3, 2008, the FDIC extended the deadline for opting out of either component of the Temporary Liquidity Guarantee Program from November 12, 2008 until December 5, 2008.  Failure to opt out by December 5, 2008 will constitute a decision to continue to participate in both the debt guarantee and transaction account guarantee programs. (Based on conversations with representatives of the FDIC on Monday, the FDIC does not expect any institution to opt out of the non-interest bearing transaction account guarantee program.)

Decisions to opt out or remain in are irrevocable, and will be made via the FDIConnect system.  Election forms will be available starting November 12, 2008, and will require certification by the institution’s Chief Financial Officer.

All eligible entities within the same holding company structure, including the holding company itself, must make the same decision regarding continued participation in either or both programs.  Eligible entities that do not opt out of the debt guarantee program must report the amount of outstanding senior, unsecured debt as of September 30, 2008, that is scheduled to mature on or before June 30, 2009.

The FDIC has also published a Sample Election Form, Election Form Instructions and Guidance for Election Options and Reporting Requirements.

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Updated Guidance from Regulators

November 5, 2008

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Updated Guidance from Regulators

November 5, 2008

Authored by: Robert Klingler

Over the last several days, we’ve had a number of conversations with the federal banking regulators on TARP Capital applications.  Although this guidance has not proved to be entirely consistent across agencies, we wanted to pass it along as we have it.  We have identified the federal regulatory agency which provided us the guidance, but we generally expect some degree of uniformity across agencies.

In addition to discussing the treatment of non-exchange listed public companies, private companies, and Sub S companies, the Federal Reserve Bank of Atlanta also emphasized that the Treasury Department intends to invest only in entities that are “viable,” with viability being determined on a case-by-case basis.  The OCC has separately provided guidance that, as a rule of thumb, an applicant must be viable without the TARP Capital in order to be approved to received TARP Capital.  Based on our conversations with regulators last week, we continue to believe the best indicator of viability is the ability of the applicant to earn money operationally, i.e. pre-tax and pre-provision, which is also known as “pre pre” earning).

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TARP Capital Decliners and Proxy Statements

November 5, 2008

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We have added two new pages to the site for banks looking to see how other bankers are handling certain TARP Capital issues.  (We’ve always found bankers prefer to listen to other bankers rather than lawyers.)

For examples of press releases of banks that have decided to publicly announce that they will not be participating in the TARP Capital program, see our TARP Capital Decliners.

For examples of proxy statements where banks have decided to seek shareholder approval to put in blank check preferred stock, see our TARP Capital Proxies.

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Non-Exchange Listed, Private and Sub S

November 5, 2008

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We spoke with an official with the Federal Reserve Bank of Atlanta official yesterday who informed us that:

  • Non-exchange-listed public companies are being considered “private companies” or as “not publicly traded” by the Treasury Department; and
  • While the federal banking regulators will continue to review applications by private companies at this time, they have been instructed not to forward such applications to the Treasury Department until further guidance is published by the Treasury Department.
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Treasury Updates TARP Capital FAQ

November 3, 2008

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Treasury Updates TARP Capital FAQ

November 3, 2008

Authored by: Robert Klingler

On October 31, 2008, the Treasury Department updated its official FAQ by adding the following three questions and answers.

Q. Does the definition of QFI include all FDIC-insured depository institutions?

A. Yes, all FDIC-insured depository institutions are covered by the definition of QFI. If an FDIC-insured depository institution is part of an eligible U.S. BHC or eligible U.S SLHC which means a holding company that engages solely or predominately in activities permitted for financial holding companies under relevant law, access to the Program will be provided through the top-tier holding company. Other FDIC-insured depository institutions could have direct access to the Program if they are part of a holding company structure that does not meet the preceding requirement or if they are not part of a holding company structure. Access will be determined as described below.

Q. What level of access to the program will be provided for top-tier holding companies that are QFIs?

A. For these institutions the level of access to the Program will be between 1 and 3 percent of total risk-weighted assets of the top-tier holding company level.

Q. What level of access to the Program will be provided for FDIC-insured depository institutions that are not part of a holding company, or are controlled by a holding company that is not an eligible QFI?

A. For these institutions the level of access to the Program will be between 1 and 3 percent of risk-weighted assets at the FDIC-insured depository institution level. This group of institutions would include, among others, stand alone banks and savings associations, industrial loan companies, and banks and savings associations that are part of SLHCs that engage in activities that are not solely or predominately permitted for financial holding companies under relevant law (e.g., grandfathered Unitary Thrift Holding Companies).

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Powell Goldstein Joins Forces with Bryan Cave

November 1, 2008

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To our Clients and Friends:

Several years ago, Powell Goldstein adopted a Strategic Plan strongly supported by our Financial Institutions Group to grow by acquisition or merger.  For our group, the objective was to have lawyers on the ground closer to many of our clients outside the immediate Southeast and to have a broader offering of services for our clients.  We have been fortunate to have had the opportunity to assess a number of alternatives in this process, but, until now, we had not found the right fit.  Now we have, and our Financial Institutions Group is very excited about how well the fit works for us.

See the Press Release below announcing the combination of Powell Goldstein and Bryan Cave.  We wanted to supplement the Press Release to tell you how this will and will not impact our Financial Institutions Group and our clients.

For us, Bryan Cave provides additional offices in the United States in Chicago, Irvine, Jefferson City, Kansas City, Los Angeles, New York, Phoenix, San Francisco, St. Louis and Southern Illinois, which we did not have before, to go with our existing offices in Atlanta, Charlotte, Dallas and Washington, DC (where Bryan Cave also has a strong office).  Plus, Bryan Cave has seven offices overseas, which we think may prove to be useful to customers of our bank clients.  This expanded geographic access supports our current national reach — as we like to say, “Community Based, Nationally Recognized.”

In addition to the increased geographic scope, Bryan Cave has a great complement of Banking and Financial Services lawyers, with whom we are already working.  This satisfies our second expansion objective of providing broader services to our clients.

In the end, however, this would not have happened unless we were convinced that the combination would produce a good cultural fit, and we are.  In talking and working with our Bryan Cave counterparts, one cultural imperative became clear: The Client Comes First!  For our Financial Institutions Group and Powell Goldstein as a whole, this has always been the case and was essential to the combination.  We’re convinced that your client experience with us will become even better as a result.

While there will undoubtedly be some changes, our Financial Institutions Group will remain intact and Walt and Kathryn will continue to be its co-leaders.  There are no billing rate changes contemplated, since Bryan Cave’s rates are in line with ours.  In Atlanta, our name will initially be “Bryan Cave Powell Goldstein,” and apart from our changed letterhead, you should see no visible signs of change, other than for the better!

Thank you for your support in the past and going forward, and do not hesitate to call any of us if you have any questions.

The Financial Institutions Group

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Treasury Department Provides Updated Information

October 31, 2008

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On October 31, 2008, the Treasury Department issued a press release with updated information about the TARP Capital program.  Specifically, the Treasury Department provided additional documents for publicly traded financial institutions applying for TARP Capital.  These documents include:

More analysis to follow this weekend, but we did want to highlight two points of information.

1.  Update for Privately Held Banks. The Treasury’s press release specifically states that the Treasury will post an application form and term sheet for privately held eligible institutions at a later date and establish a reasonable deadline for private institutions to apply.

2.  Redemption Right on Warrants. The Securities Purchase Agreement gives the right (Section 4.9) for the Company to repurchase the warrants (or the common stock underlying the warrants) from the Government at their then current market value once the Government no longer holds the preferred stock.  This provides participating institutions with the ability to know that the Government’s investment, and the resulting limitations on executive compensation, can be terminated by the participant no later than 3 years after the initial investment (assuming sufficient capital to support the redemption of the preferred and warrants).

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Last Minute Halloween Costume

October 31, 2008

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Last Minute Halloween Costume

October 31, 2008

Authored by: Robert Klingler

  1. Get a dropcloth or old tablecloth
  2. Put it over your head
  3. Pin a dollar bill to the front (or make a fake $700-billion dollar bill)
  4. Now you’re the TARP program.

Warning #1:  If you’re attending a party with non-bankers/non-lawyers, people may just think you’re a ghost with your cab fare pinned to you in case you get drunk.

Warning #2:  Once you tell them who you are, you may find yourself in the “nerd corner” having an exclusive party of your very own.

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Reputation Risk May Cut Both Ways

October 30, 2008

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Reputation Risk May Cut Both Ways

October 30, 2008

Authored by: Robert Klingler

In a CEO alert published by the ABA on October 29, 2008, the ABA specifically addresses the possible reputation risk of participating, and the steps ABA is taking to address that risk.  For the ABA analysis, see the full ABA CEO Alert.

What Will My Customers Think? If a bank receives a capital investment from Treasury, will its customers call it a bailout?  This is an enormous concern that we’ve raised with Secretary Paulson.  Perception is still reality, and in the eyes of many customers and the media, it’s a bailout, no matter how many times Treasury says that the capital is for healthy institutions.  Most banks have never made a single subprime loan. They’ve watched Wall Street boom and bust and receive handouts.  Many banks will not participate in the CPP if it continues to be perceived by their customers as a bailout for troubled institutions.  Yet it’s also possible that if a banker doesn’t participate and competitors do, customers or the media might think they were turned down.

This is a voluntary program, and there are good business reasons why a bank may choose to participate.  This is a message we’ll be hammering in the media, just as we are pressing Treasury and the regulators to do.

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Hovde Suggests Combining TARP Capital with Private Equity

October 30, 2008

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On October 28, 2008, Hovde Private Equity Advisors circulated an email specifically addressing whether institutions should seek to combine TARP Capital with private equity.  For more information, or to explore the available capital partnerships, contact Joe Thomas, Managing Director of Hovde Private Equity Advisors, at JThomas@Hovde.com or 202.261.0845.

Although we have experienced unprecedented legislative and regulatory changes in the banking industry that may provide near-term systemic support, the implications for community banks remain unclear.  To ensure continued success in this challenging operating environment, we believe that banks must now look to obtain the necessary mix of new capital in order to address credit losses and to also capitalize on strategic opportunities.  We believe that the Treasury’s TARP Capital Purchase Program (CPP) represents a compelling source of inexpensive Tier 1 capital.  Without this one-time support from the government, your institution may find itself at a strategic disadvantage amidst a severe credit cycle and radical consolidation phase in the banking industry.

If your bank is eligible to participate in the TARP CPP, then you might consider a private equity investment in 2009 in order to achieve a reduction in the proposed 15% warrant coverage on the senior preferred shares (which participating financial institutions must issue to the Treasury).  If you have concerns about your institution’s eligibility, then we believe that a concurrent private equity investment could help your bank gain access to the Treasury’s CPP.   Based on our recent discussions with banking regulators, we believe that those banks with CAMEL ratings of 3, 4 and 5 which are experiencing increasing levels of credit and capital deterioration, may not be approved for participation without a concurrent private equity investment.

Co-investing with private investors is a “win win” for the Treasury, as it allows the federal government to stabilize banking institutions while deploying fewer taxpayer dollars.  While the cost of private equity capital exceeds the Treasury’s cost of capital, the blended cost of capital–via private equity and a government injection–is far lower than it will be if an institution applies for and does not receive Treasury support.

To see all Investment Banker reports on this site, please see all posts tagged Investment Banker.

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