MidSouth Bank President Rusty Cloutier is frustrated.
As soon as the Lafayette-based bank received $20 million from the Troubled Assets Relief Program, Cloutier held 14 meetings in the bank’s footprint to let customers know it was making loans despite the credit crunch.
But Cloutier now says there might be no TARP capital to account for if the federal government continues to change the rules for a program that was supposed to help healthy banks make more loans and buy assets of failed banks to preserve the system.
“This thing changes every 15 minutes,” he says. “All the government did was give us $20 million, which I’m paying 7.5% to keep, and I’ll return it in some period of time. If I have it or not, it won’t change how I run the bank. But whether the community banks keep it or not will make a difference to the country.”
The latest TARP restrictions—part of President Barack Obama’s recently signed stimulus package—won’t affect MidSouth Bank, a community bank with $936.8 million in assets.
MidSouth is leveraging TARP capital into $250 million in loans, though Cloutier’s meetings confirmed credit-worthy borrowers might be in shorter supply this year. According to the bank’s fourth-quarter earnings statement, total loans increased $39.5 million, or 6.9%, in 2008, to $609 million. He anticipates 3% to 4% growth in 2009.
But Cloutier warns a major TARP pullout could exacerbate the nation’s serious financial problems.
“It will put a freeze on credit you wouldn’t believe,” he says. “You won’t have banks that can buy bad assets they have to sell. The big boys that got the capital are in terrible liquidity positions and need more capital.
“We use our capital every day to make loans. It’s not like it’s a separate pile of money.
Metairie-based Omni Bank hasn’t received word from the U.S. Treasury regarding its TARP application. President Kyle Waters says its March board meeting will be devoted to weighing options on the capital if the application is approved.
Waters, a 30-year bank veteran, considers Omni to be in a “damned if you do, damned if you don’t” scenario. The constantly changing restrictions—including some that are retroactive—and TARP’s negative image weigh heavily against participating in the program, the bank can’t ignore a “capital cushion” in the tougher economy.
“There are people who think we should take it for good reasons,” Waters says. “There are people who think we shouldn’t take it for good reasons. I wonder if banks that chose not to apply … now wish they had because the economy has gotten tougher.”
Whitney National Bank, which received $300 million in TARP capital, declined to comment about the program.
The New Orleans-based bank earned $58 million in 2008, a 60% decline from 2007. In November, it closed on the purchase of Covington-based Parish National Corp., which also gave a boost to its loan and deposit portfolios. Whitney’s loan portfolio increased by $1 billion, and its deposit portfolio increased by $1.2 billion.
In its fourth-quarter statement, Whitney President John Hope III said, “The additional funds received through our issuance of preferred stock to the U.S. Treasury strengthens our ability to continue providing both lending and deposit services to customers and communities across our footprint as we and the entire nation face the challenges that have and will come from these unprecedented economic times.”
IberiaBank announced on Feb. 27 it was returning its $90 million TARP infusion, becoming the first bank in Louisiana—and the nation—to make that move. According to a news release, President Daryl Byrd says recent TARP changes did not favor the bank.
“We believe recent actions, interpretations and commentary regarding various aspects of the program place our company at an unacceptable competitive disadvantage,” he said.
In its fourth-quarter earnings statement, IberiaBank said it was “positioned to weather the national economic malaise … to expand both through organic growth and acquisitions. By the sequencing of the capital raising activities, the company has reduced 50% of the warrants issued in CPP/TARP and has the ability, though not necessarily the intent, to redeem the CPP/TARP funds. The company believes it is currently the only financial institution in the country that can state that claim.”
Since receiving $3.5 billion in TARP capital, Birmingham, Ala.-based Regions Bank has loaned more than $14 billion in new and renewed loans in a footprint that includes more than 2,000 locations in 16 states, South Louisiana President Danny Montelaro says. Regions will pay $175 million in interest on the capital.
Regions reported a $5.6 billion loss last year, but lending increased 3% in the fourth quarter.
“We intend to abide by the provisions set forth and by any additional guidelines that the Treasury outlines under the auspices of the TARP program,” he says. “People are upset, but they are really upset about businesses closing, people losing jobs, homes being lost and at some of the front-page excesses that they see from Wall Street types. It’s a combination of understandable anxiety and outrage.
“I’m reminded, however, that the problem wasn’t just in Wall Street, but also from borrowers, lenders, investors and speculators. Now, we can claim to be isolated or uninvolved in the problem, but as a country we are in this time together.”
Capital One took $3.6 billion in TARP capital. Bank spokesman Steven Thorpe says it made $440 million in loans and investments that included community development and affordable housing in the fourth quarter of 2008. The company also bought more than $6 billion in investment securities backed by mortgage and consumer loans.
“In the current economic and market environment, investing our deposit funding in high-quality, short-duration securities provides appropriate risk-adjusted returns for our shareholders, and supports the recovery and stabilization of secondary markets that are critical to consumer lending and the economy,” he says.
Earlier this month, JPMorgan Chase President Jamie Dimon testified to Congress the bank made more than $50 billion in new consumer loans in the fourth quarter of 2008. More than $20 billion in new credit was extended to 8,000 small and mid-sized businesses, governments and nonprofits, as well as an incremental $5 billion in lending to government and non-profits over the next year.
Chase spokesman Greg Hassell also says the bank, which received $25 billion in TARP funds, also reported it is paying $1.25 billion annually in dividends on this stock for the first three years.
“Our bank is using the TARP funding for the purposes that the government has designated,” Hassell says. “We are lending to consumers, small businesses, corporations, municipalities and other institutions in a disciplined and responsible manner.”