Daniel Gross

Bank Stock Sales Bring $1 Billion in TARP Repayments to Treasury

Contrary Indicator

The Capital Purchase Program (CPP), in which Treasury rushed to the aid of banks by buying preferred shares, was one of the central components of the TARP. Over the past few years, as banks have returned their capital, paid dividends and interest on the shares, and as Treasury has sold the warrants it received as part of the deal, cash has been coming back in bits and pieces. So much so that the CPP has officially been in the black for a few months, as this update shows. A total of $204.9 billion was disbursed in CPP and Treasury has received $212.16 billion back.  

Last week, Treasury quietly brought in more than $1 billion for CPP in a series of transactions. Two banks repurchased shares they had sold to Treasury, and Treasury auctioned off preferred shares it held in six banks to investors.

Zions Bank is one of the largest banks that has yet to return its TARP money. The Salt Lake City, Utah-based bank took $1.4 billion in November 2008. On March 28, it bought back $700 million of the preferred shares, reducing Treasury's stake by half. It still owes the taxpayers $700 million.

Northern State Bank of Closter, New Jersey, repaid its $2.5 million in TARP funds plus $67,000 for preferred shares it had given Treasury in lieu of warrants, and has fully exited the program. (The bank has been renamed First Commerce Bank).

In a departure from the usual practice, Treasury announced last week that it would hold offerings of shares it held in six banks to investors. (Typically, banks buy back the preferred shares themselves.) In the case of the auctions, Treasury effectively took a loss on these investments, because the total proceeds it received were less than what it had initially paid for the shares.

Banner Corporation, in Walla Walla, Washington, had taken $124 million in TARP funds in November 2008. Treasury received $108 million for the shares it auctioned.

First Financial Holdings, in Charleston, South Carolina, took $65 million in December 2008. Treasury received $55.9 million for the shares it auctioned.

Wilshire Bancorp, in Los Angeles, took $62.2 million in TARP funds in December 2008. Treasury received $57.8 million for the shares it auctioned. In a twist, though, it turns out that Wilshire was the main purchaser. The bank bought 60,000 shares out of the 62,158 shares sold, paying about $56 million.

Seacoast Banking Corporation of Stuart Florida, in December 2008 took $50 million in TARP funds. Treasury received $40.4 million for its stake.

Mainsource Financial Group in Greensburg, Indiana, took $57 million in TARP funds in January 2009. Treasury received $52.3 million for its stake.

WSFS Financial Corporation in Wilmington, Delaware, took $52.6 million in TARP funds in January 2009. Treasury received $47.4 million for its stake.

The upshot? On these six transactions, Treasury had put in $410.5 million and received $361.8 million in return. That's a loss of $48.7 million. Treasury still holds warrants in all six banks and will receive some funds from selling those, but not enough to make up for the losses. It's unclear why Treasury chose to do secondary offerings rather than press the bank to pay back themselves.

In all then, through these deals, about $1.064 billion was returned to Treasury.

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com

His next book, Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy will be published in May and is available for pre-order.

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