All but two Mississippi banks — both identified as small community lending institutions — have repaid the emergency capital received through the Treasury Department’s Troubled Asset Relief Program, or TARP.
By shedding their TARP debt, Mississippi’s banks avoid a hardball provision of the loan program that requires institutions yet to fully repay the taxpayer-provided funds to pay 9 percent in annual dividends, up from 5 percent today.
It’s a hefty increase, designed to encourage banks to pay back the money. But most of the banks still in debt to the Treasury Department still rely on that government capital to support their lending. And they don’t have many good options for raising new cash to replace it.
While neither the Treasury Department nor Mississippi Banking Commissioner Jerry Wilson would identify Mississippi’s two tardy TARP recipients, Wilson said he does not foresee the two banks having difficulty repaying the money.
“I don’t think the Treasurer will take a loss on either of those,” Wilson said in an interview last week.
Most Mississippi banks turned down the TARP money based on beliefs their capital reserves could outlast the approaching period of dried up capital sources. Ultimately, only 15 of the state’s more than 80 banks accepted TARP help, according to the Treasury Department.
A dozen more Mississippi banks participated in the Community Development Capital Initiative, or CDCI, a segment of TARP designed to help ease hardships the financial crisis placed on communities underserved by traditional banks. Through CDCI, Treasury provided $570 million in capital to banks, thrifts, and credit unions that qualified as CDFIs in February 2010, including approximately $250 million to Mississippi institutions.
Community Bancshares of Mississippi, holding company for Brandon-based Community Bank and Community Bank entities elsewhere in the state, converted its TARP allocation of around $70 million of Community Development Capital Initiative funds, marking the largest allocation received among Mississippi’s banks. Banks that converted their TARP money into the CDCI program avoided the 5 percent interest rate of the conventional TARP money. They instead received the funds at 2 percent, though they must repay at 8 percent any funds not used to assist underserved localities by 2018.
Wilson headed Macon’s Bank First as the banking crisis of late 2008 spread across the country. As a hedge against depleted capital, BankFirst ultimately accepted around $16 million in emergency capital and later converted that debt into lower-cost capital from the Small Business Lending Fund, a federal program born of the banking crisis and meant to raise capital at smaller banks, which tend to lend more heavily to small businesses.
But many other of Mississippi’s community banks — and even larger ones such as BancorpSouth, Renasant and Hancock — chose to go it alone, despite the higher capital requirements regulators sought at the time.
“If you were just a small community bank, you were comfortable with your loan portfolio,” Wilson said. “They would have had no reason to go into the TARP program.”
But TARP made sense if you had bad loans and needed to clean up a balance sheet and worried charge offs would put you below capital requirements, he added.
History will ultimately grade the wisdom of the bank rescue settled on in the closing weeks of the George W. Bush presidency.
Its main goals were:
» Protect home values, college funds, retirement accounts, and life savings;
» Preserve homeownership and promote jobs and economic growth;
» Maximize overall returns to the taxpayers of the United States.
Collectively, the Treasury Department says, TARP and the government’s other emergency measures prevented the collapse of the U.S. financial system and restored confidence in the system. That led, Treasury says, to restarting economic growth, and restoring access to capital and credit.
In Mississippi, only a couple of banks went under in the years following the crisis. Neither took TARP money, Wilson said.
Today, all of the state’s banks are in the black, according to the FDIC.
Wilson gives TARP a degree of credit for the current healthy of the state’s banking sector. “I would give it a ‘B.’ I wouldn’t give it an ‘A.’ I think it did serve a useful purpose.”
Looking back at the direction he took on TARP as CEO of BankFirst, Wilson said: “I think it was the right decision” to take TARP,
A possible outcome that is not universally appealing to bankers or average Americans is that TARP cemented the government’s doctrine of “Too Big to Fail.”
Back in the money
Often perceived as a mega charity effort, the injection of $475 billion that began with the outset of the banking collapse in late 2008 and early 2009 has actually netted the government $26.48 billion, according to the Treasury Department.
Two other high-profile parts of the asset recovery program — the rescues of American International Group and General Motors — struggled at times but later righted themselves.
The government’s overall support for AIG — a multi-national insurance corporation — peaked at approximately $182 billion. That amount included $70 billion that Treasury committed through TARP, and $112 billion committed by the Federal Reserve Bank of New York. As of Dec. 31, 2012, the $182 billion committed to stabilize the company had been fully recovered — plus an additional positive return of $22.7 billion, the Treasury Department says. Treasury continued to hold warrants to purchase approximately 2.7 million shares of AIG common stock. On March 1, 2013, AIG purchased the remaining warrants, ending Treasury’s investment in AIG.
Treasury provided about $50 billion of TARP funds to GM in 2008 and 2009. By the end of 2012, Treasury had sold more than two-thirds (612 million) of the 912 million shares of GM common stock it originally held.
On Dec, 21, 2012, GM bought 200 additional shares of common stock held by TARP at $27.50 per share, 10 percent above the three-day average of the previous closing prices, Treasury said, The stock purchase brought TARP $5.5 billion, Treasury added.
The sale set the stage for Treasury to “to fully exit its remaining GM investment within 12-15 months, subject to market conditions,” the agency said.
Treasury, meanwhile, exited its $12.4 billion investment in Chrysler in July 2011, six years ahead of schedule, having recovered $11.1billion. Treasury says, however, it is unlikely to fully recover the difference of $1.3 billion owed by the “Old Chrysler,” the entity that constituted the pre-2009 bankruptcy Chrysler..