–Some Sales of Smaller Bank Preferred Stock May be Pooled
–Small Number of Smaller Banks to Still Repay TARP Invests

By Denny Gulino

WASHINGTON (MNI) – The Treasury Department Thursday announced it is
not waiting for hundreds of smaller banks to repay the TARP — which for
many is impossible — and so will sell its preferred stock, sometimes
pooling several bank holdings, restructuring some investments and for a
few, wait for repayments.

The announcement was made by Timothy Massad, assistant secretary
for financial stability, who said the change is “not because smaller
banks have any less desire to repay taxpayers than larger banks,” but
because they find it harder to raise the funds to do so.

A few weeks ago the last of the large banks to repay TARP, Regions
Financial, turned over $3.5 billion to the Troubled Asset Relief Program
invested at the height of the 2008 financial crisis. That locked in $19
billion in positive returns to the fund, above the $245 billion
invested.

Given that, Treasury can afford to sell the preferred stock it
holds in most of the 343 smaller banks that still remain in the TARP
program for less than par value, but only, Massad said, “if the terms
represent the best deal for taxpayers under the circumstances.”

He said Treasury still expected “a number” of the smaller banks “to
have the ability” to repay and for those, Treasury will wait.

“A majority of the remaining banks do not fall in this category
today, however,” he said. “We do not expect them to be able to repay
Treasury in the foreseeable future.”

For a “handful” of those, Treasury will restructure the holdings,
receiving cash or other securities which can be more easily sold than
the preferred stock.

For most, there will be public auctions, which when done in the
past, “received very strong interest from a broad base of investors,” he
said.

“We also believe,” Massad said, “that selling these investments can
be beneficial for community banks that don’t have easy access to the
capital markets — because it attracts new, private capital to replace
the temporary government suppport.”

“The sale prices may be less than the original par value,” he said,
“but we have already estimated that the value of these investments is
less than par in budget projections, and we’ll only sell above a pre-set
reserve price in order to best protect taxpayer value.”

The extent to which Treasury holds the auctions, how long it waits
for the remaining repayments and how much restructuring it will do “will
ultimately depend on market conditions,” he said.

** MNI Washington Bureau: 202-371-2121 **

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