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VOL. 123 | NO. 225 | Monday, November 17, 2008

Area Banks Could Accept Federal Help

By Andy Meek

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Community bankers in the Memphis area as well as throughout Tennessee could be changing their minds about the merits of accepting injections of capital from the U.S. Treasury Department.

About a month ago, Treasury officials sat the heads of nine large U.S. banks – including Bank of America, Goldman Sachs and Citigroup – down around a table and all but forced them to collectively accept $125 billion as part of a broad strategy to shore up the economy by directly injecting capital into banks to encourage them to lend money. Regional players such as SunTrust and Memphis-based First Horizon National Corp. later stepped up and applied for the federal cash as well.

Over the next few days and possibly weeks, smaller community banks – including those in and around Memphis – likely will receive approval to do the same thing.

Gauging interest

Participating banks will sell preferred stock to the government in exchange for the low-cost capital. It’s difficult to know which local community banks are interested in the Treasury plan at the moment, even though it is understood at least a handful of them are interested and weighing their options. Some of them likely already have applied to participate.

The reason it’s difficult to gauge the total level of interest has to do with perception and how the average bank customer might regard the word that his or her community bank is thinking about taking part in the program.

“I know there are a lot of people looking at it at this point in time,” said Tim Amos, senior vice president and general counsel of the Tennessee Bankers Association. “But the fact is that the process is such that unless and until a bank is actually announced that they’re in the program, we can’t know who’s (looking).”

When the government first rolled out its plan to put money directly into the banking system, the response heard frequently at the state and local level in Tennessee generally focused on what incentive exists for community bankers to participate in the program if their banks already seemed to be sufficiently healthy.

At a panel discussion at the University of Memphis a few weeks ago led by U.S. Sen. Bob Corker, R-Tenn., some of those same bankers pressed the senator on the program’s seeming unfairness. In other words, the federal government seems to be favoring certain banks over others by choosing which ones to give money to.

“Those institutions not receiving investments are almost perceived to be weak,” Corker conceded. “So there are unintended consequences we need to work through.”

But the way those smaller bankers regard the Treasury program appears to have evolved somewhat over the last few weeks. Bank of Bartlett chairman and CEO Bob Byrd is one such banker.

Bob Byrd

He said he’s reconsidering his earlier judgment about staying away from the program now that the plan’s focus has shifted toward the capital infusion. At first, the main idea was for the government to buy up the troubled assets clogging the balance sheets of banks and use that to conceivably give the banks enough breathing room to start lending again.

Perception is reality?

Following a meeting he had several days ago with representatives of the Memphis branch of the Federal Reserve Bank of St. Louis, Byrd said his bank is still analyzing the program in light of the focus shifting to the capital infusion. And he admitted he viewed the new focus in a favorable light.

But he’s not saying whether his bank will participate or not.

“The average person might look at that as a bailout, and that’s just not publicity anybody needs right now,” said Byrd, whose bank is listed as the No. 8 Memphis-area bank in terms of market share in the Federal Deposit Insurance Corp.’s market share report dated June 30.

Byrd was alluding to the perception that seems to have formed among the general public that every aspect of the government’s plan to fix the banking system is tantamount to a bailout. The TBA recently distributed a fact sheet arguing that’s not the case.

“The Capital Purchase Plan investments are just that – investments by the government on behalf of taxpayers,” the TBA information states. “Since an overwhelming majority of the banks that may participate are already well-capitalized, the CPP is not a ‘bailout.’ Using that term is misleading and inaccurate.”

Howard Lasley, vice president and manager of Duncan-Williams’ financial services group in Memphis, agreed that the reason community bankers may be warming to the idea has to do with one word: perception.

“There was a stigma attached to it at first,” he said. “(Some bankers) were afraid to do it because they thought they might be perceived as being weak and undercapitalized. Now they’ve kind of reversed that position, thinking that if they don’t they may be perceived as not being good enough to receive a capital infusion.

“I know some (community banks) locally that have talked about (participating), but I’m not at liberty to say who they are. And I think they’re going to, they just haven’t yet. … The ones that have applied for the capital seem to think it should be perceived as a good thing as opposed to two or three weeks ago when they perceived it as a bad thing.”

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 32 176 2,507
MORTGAGES 26 101 1,687
FORECLOSURE NOTICES 10 37 259
BUILDING PERMITS 0 365 5,497
BANKRUPTCIES 16 57 963
BUSINESS LICENSES 0 107 488
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0