August 2010 Archives

The government has earned more than $3 billion this year from auctions and repurchases of stock warrants it received from participants in the Troubled Asset Relief Program, according to the Treasury Department's latest warrant disposition report.

For every investment that Treasury made in a publicly traded financial services company through TARP's Capital Purchase Program and the Targeted Investment Program, it got preferred stock, plus warrants entitling the holder to buy common stock at a set price, similar to stock options.

When the TARP recipients exit the program by redeeming their preferred stock, they also can repurchase their warrants. If they decline, Treasury typically sells them through auctions.

So far in 2010, Treasury has earned $32 million from six banks that repurchased their warrants and more than $3 billion from 11 auctions. Bank of America Corp., which participated in both CPP and TIP, had two separate sets of warrants. Together those two auctions netted Treasury more than $1.5 billion.

The report also reveals that Treasury holds warrants in 15 publicly traded companies that have repaid their debts, the largest of which include Discover Financial Services, Hartford Financial Services and Lincoln National Corp. Treasury holds warrants in another 214 companies that have outstanding TARP debts.

Since TARP began in October 2008, Treasury has earned $7 billion from repurchases and auctions of warrants.

In the 14 warrant auctions held to date, the demand for warrants at a price above Treasury's minimum has exceeded supply an average of 6.5 times over, according to the report. That could be good news for taxpayers, who would profit from heightened demand for the warrants.

Capital Bank Corp. has announced plans to raise as much as $116.6 million through a public offering of common stock.

The Raleigh, N.C.-based company owns Capital Bank, which got $41.3 million in taxpayer money through the Troubled Asset Relief Program in December 2008. 

The company made no mention in its registration statement of any plan to repurchase the TARP shares and warrants that the subsidiary issued to the Treasury Department in return for the aid.

According to its Securities and Exchange Commission filing, Capital Bank Corp. intends to use the proceeds from the share sale "for general corporate purposes, including to strengthen the capital of the Bank and to support our strategic growth opportunities in the future."

It said management intends to exercise "broad discretion" in the use of any new capital raised through the offering, which would nearly quadruple its number of shares outstanding.

Capital Bank Corp. said last week that it lost $14.2 million in the second quarter  on top of a $5.92 million loss in the first quarter and a $9.17 million loss for 2009.

The company saw its nonperforming loans rise from $58.2 million to $74.8 million in the second quarter alone. Total nonperforming assets went from $73.8 million to almost $100 million in the same period.

According to the company's registration statement, 83 percent of its loan portfolio at March 31 "had real estate as a primary or secondary component of collateral."

Capital Bank has paid almost $3 million in TARP dividends to the government, all of them on schedule. But it has yet to redeem any of the preferred stock or warrants it issued to the Treasury.

Given the deterioration of its finances, it is unlikely that Capital Bank would receive regulatory permission to redeem any or all of its TARP shares, even if it were leaning in that direction.

News of the stock offering spooked investors. The company's shares fell more than 30 percent on Friday after it announced its earnings and plans to sell shares.

The offering of 34.5 million common shares will be underwritten by FIG Partners, LLC as sole book-runner and lead manager.  The maximum offering price per share was set at $3.38.

The company's stock closed Wednesday at $2.36 a share.

The Obama administration announced today that five states -- Ohio, North Carolina, South Carolina, Oregon and Rhode Island -- now have access to $600 million to implement their own foreclosure prevention programs.

Funding for those states was initially announced in March. Their housing finance agencies submitted proposals to the Treasury Department earlier this summer, which were reviewed to make sure they complied with federal laws.

The five-state group was the second to get funding under the "Hardest Hit" program, which provides federal money for state-run efforts to reduce foreclosures. In June, $1.5 billion was approved for Arizona, California, Florida, Michigan and Nevada, which have high numbers of underwater homeowners.

The latest states were selected because they all have relatively high percentages of residents living in areas with heavy concentrations of unemployment, according to Treasury officials.

The funding and aid targets for each state are:

·        North Carolina -- $159 million to aid up to 7,190 homeowners

·        Ohio -- $172 million to aid up to 5,356 homeowners

·        Oregon -- $88 million to aid up to 7,400 homeowners

·        Rhode Island -- $43 million to aid up to 5,000 homeowners

·        South Carolina -- $138 million to aid up to 12,000 homeowners.

U.S. Rep. Maxine Waters, who is under investigation for using her influence to help aid a bank in which her husband held investments, confided to a fellow lawmaker that she felt conflicted about what she was doing but did eventually interceded anyway, according to a newly released report from the House Office of Congressional Ethics.

Waters, a Democrat from California, is accused of helping to secure meetings between OneUnited Bank and Treasury officials in 2008. The Boston-based bank received $12.1 million in taxpayer capital through the Troubled Asset Relief Program in December of that year. The House's ethics committee has concluded that Waters likely had a conflict of interest in arranging those meetings, since her husband served on the board from 2004 to 2008, and he had between $250,000 and $500,000 worth of investments in the bank.

Last year, the House panel began examining Waters. The report released Monday is a year old but was made public for the first time. The ethics committee has convened a panel that will eventually hold a trial to determine if Waters did, in fact, violate the rules of the House.

The report found that Waters may have violated rules regarding conflicts of interest when she contacted then-Treasury Secretary Henry Paulson to request that Treasury officials meet with representatives from the National Bankers Association. Ultimately, OneUnited was the only bank to be independently represented at the September 2008 meeting.

At issue was how the Treasury Department had structured the conservatorship of Fannie Mae and Freddie Mac, which Waters argued could cause a disadvantage for minority-owned banks. OneUnited, which bills itself as "the first black-owned Internet bank," was suffering, since its investments in the two government-sponsored enterprises had declined sharply in value.

The report noted that Congress had a legislative fix for banks that suffered because of their investments in Fannie and Freddie preferred stock -- allowing them to write off the entire value of the stock in a single year. But OneUnited's exposure was so extensive that the fix wasn't enough.

House legislation was eventually created to allow a bank that would be ineligible for TARP to qualify if the reason for its capital problems was its Fannie and Freddie stock.

According to the report, Paulson said Waters did not mention OneUnited during her call, nor did she mention her financial interest in the bank. Instead, according to Paulson, she merely said she had "some people in town who were important to her" that wanted a meeting with Treasury to discuss the issue.

Later, Paulson told Waters he was expecting more members from the National Bankers Association and had expected a larger turnout.

According to the report, Rep. Barney Frank (D-Mass.) reported that Waters told him she was torn about whether to intercede on OneUnited's behalf, due to her husband's involvement in the bank. The report does not name Frank by name and refers to him only as "Representative A," but it also noted that Representative A is chair of the House Financial Services Committee, and that position is held by Frank.

"According to Representative A, she knew she should say no, but it bothered her," the report states. "It was clear to Representative A that this was a 'conflict of interest problem.'"

The report goes on to state that the representative advised Wasters repeatedly to "stay out of it" and that he was willing to intercede on the bank's behalf, but she went ahead and contacted Paulson anyway.

In a statement released Monday, Waters denied violating any House rules. She insisted that the meeting was scheduled and requested by the National Bankers Association and was not inspired by OneUnited.

"(T)he suggestion that I could gain personally from one phone call made to assist the National Bankers Association in getting a meeting with the Treasury Department is not credible," Waters wrote. "Even the (Office of Congressional Ethics) acknowledges that the meeting resulted in no action. Although it leveled the accusation, the OCE also failed to show that I received any benefit or engaged in any 'improper exercise of official influence.'"