-
Bank securities held by the Treasury Department through the Troubled Asset Relief Program would no longer count toward a banking company's Tier 1 capital under the Senate's version of the reform bill, legal experts said.
June 9 -
Senate Banking Committee Chairman Chris Dodd on Wednesday endorsed a proposal to force banks to spin off their derivatives desks, saying Sen. Blanche Lincoln's primary win this week had increased odds some form of it would be in the final regulatory reform bill.
June 9
More bankers are grappling with the prospect that the government will soon go from being a passive investor in their companies to an influence in the boardroom.
The agency is set to release a report Friday that shows how many banks in the Troubled Asset Relief Program have missed six dividend payments to Uncle Sam — a milestone that would clear the way for Treasury to appoint two directors — or are close to it.
In the old days, the sentiments of Brian Garrett, the chief executive of Community Bank of the Bay in Oakland, would have reigned: "Are you kidding me? Timmy Geithner on my board? Some guy who can't even pay his taxes is going to tell me how to run my bank?"
But some delinquent bankers say they wouldn't mind the added expertise.
Kaye Kim, the chief financial officer of Commonwealth Business Bank in Los Angeles, which missed a fifth dividend payment in May, said the company would welcome some fresh insight.
"Adding another two persons at this juncture could be a plus because they bring additional expertise," Kim said.
Under the Treasury's rules, banks that accepted Tarp capital must pay a 5% quarterly dividend to the government until the funds are repaid. A March Treasury report showed that 74 banks have deferred at least one payment, with a dozen missing four payments. Friday's report will show how many banks have missed the latest payment on May 17.
Saigon National Bank, which focuses on lending to the Vietnamese business community in Southern California, is the only bank to have missed six payments. The $70 million-asset company received $1.55 million in December 2008. Saigon did not return calls seeking comment.
Saigon's chief financial officer, Roy Painter, told SNL Financial that the Office of the Comptroller of the Currency has blocked the payments. An OCC spokesman said the agency does not comment on supervisory matters. But banks behind in their payments may be restricted by enforcement actions prohibiting them from paying dividends without approval.
Several banks that have missed at least four payments are in California, which further restricts dividend payments at banks that are not profitable.
They must obtain approval from shareholders and their primary regulator before paying dividends.
David Miller, the chief investment officer in the Treasury's Office of Financial Stability, told lawmakers last month that the agency was "considering our options" when asked if it planned to appoint board members.
Asked for an update on the Treasury's thinking, the agency issued this statement Wednesday: "Treasury is evaluating its options with respect to exercising its right to appoint members to the board of directors after an institution misses six dividend payments, a right granted under the securities purchase agreement governing [Capital Purchase Program] transactions."
It is unclear when the Treasury will announce what it plans to do with seriously delinquent Tarp takers. But industry observers said they'd be surprised if the Treasury passed up the chance to flex its muscle by taking action.
"The mandate that they have with the Tarp legislation is that they have to protect taxpayers' interest, and they can't waive their rights in ways that are contrary to taxpayers' interest," said Linus Wilson, a finance professor at the University of Louisiana in Lafayette.
Wilson said the provision allowing the appointment of directors is standard in preferred stock agreements. It gives the Treasury some controlling rights if it's not paid, and offers a window into decisions at the company, he said. Yet, Wilson said, such appointments would raise legitimate concerns about government involvement in private enterprise.
"It's almost like this implied authority that those two folks speak for the government," said Jeffrey Hare, a partner at DLA Piper. "They probably would be able to wield a little bit more because of who they represent."
But Lawrence Kaplan, a partner at Paul, Hastings, Janofsky & Walker LLP, said new directors would not be able to require a bank to make its payments if it is under an enforcement order barring it. Appointing these directors may do little more than raise alarms about government intrusion, he said.
"Given it's the first time it's happening, I think Treasury is really between a rock and a hard place," Kaplan said. "They're going to want to show that they can exercise the power, but they also want to have a light touch."
