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VOL. 123 | NO. 201 | Tuesday, October 14, 2008

Tenn. Banks Pass On Bailout Plan – For Now

By Andy Meek

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NOT BITING: Treasury Secretary Henry Paulson pauses during a recent news conference at the Treasury Department in Washington. Meanwhile, most Tennessee banks aren’t nibbling eagerly at his organization’s $700 billion bailout plan. -- AP PHOTO/EVAN VUCCI

Banks and other financial institutions in Tennessee have shown little interest in the $700 billion rescue plan for the country’s financial system.

Representatives of the Tennessee Bankers Association met several days ago with a cross section of the more than 230 banking institutions across the state. The message relayed to the industry group is few Tennessee banks are waiting in the wings to sell their hard-to-value mortgage-backed loans to the government and thus use the U.S. Treasury Department’s bailout plan to clean up their balance sheets.

Tim Amos, senior vice president and general counsel for the TBA, said that sentiment goes for most of the banking enterprises in the state. He said one reason is it’s not yet clear how the rescue plan will be implemented.

Wait and see

The financial bailout plan passed by Congress and enacted earlier this month – called the Emergency Economic Stabilization Act – gives Treasury officials the power to buy illiquid assets from banks to help spur new lending and kick-start the nation’s credit markets. Driving the need for the rescue plan in large measure was upheaval in the housing market, and that upheaval was reflected in everything from falling home prices to rising foreclosures and a spike in the number of borrowers falling behind on their mortgages.

When more and more homeowners fall behind or default on their mortgage debt, it causes a chain reaction all the way up to the banks that hold those giant pools of mortgages and mortgage-backed securities.

“But our community banks just didn’t make a bunch of bad loans in the first place,” Amos said. “We’ve heard things by and large like, ‘I’ve had one foreclosure this year.’ Or, ‘I’ve had two foreclosures this year.’ We also have heard things like where there’s a commercial builder who’s under water wanting to know if he can sell that loan into this (Treasury) fund.

“I know they’re all looking at possibilities. But nobody we’ve talked to is jumping up and down to sell a package of loans.”

Financial and political leaders from around the world met in Washington late last week to sort through the credit crisis that has sent markets around the world into a tailspin. One idea most world leaders seem to be warming to is injecting capital directly into banks.

That idea also reportedly is growing in importance to U.S. Treasury Secretary Henry Paulson, even though he pushed hard for power to buy troubled assets from banks, which became a major piece of this month’s bailout legislation. That could be one reason Tennessee’s financial institutions are taking a wait-and-see approach – because it’s not yet known what impact the program will have or how it will be carried out.

Conservative vindication

Dave Miller, senior vice president of investor relations and corporate strategy for Memphis-based First Horizon National Corp., said another reason could be related the kinds of debt the Treasury Department is looking to buy.

“The Treasury appears to be first looking at mortgage-related securities products for purchase,” he told The Daily News. “Those assets have triggered many of the write-downs at larger commercial and investment banks. We don’t have those assets on our balance sheet, nor do most smaller banks.

“On the other hand, the legislation gives the Treasury broad authority to purchase assets it deems helpful to the system, and so it seems likely to us that they could extend the program to assets that would benefit the typical regional/community bank.”

Miller said that would include things like construction loans and home equity loans. First Horizon is a local case in point for the kind of Tennessee bank that might have less of an incentive to jump into participating in the Treasury program than a more debt-laden bank.

Memphis-based First Horizon took a variety of steps to reposition itself earlier this year, moves that included cutting back its nationwide loan portfolio and selling off much of its mortgage business outside Tennessee. And despite Friday’s more than 1,000-point swing in the Dow Jones Industrial Average, First Horizon saw its stock price actually climb 7 percent, closing at $8.11 per share at the end of trading Friday.

PROPERTY SALES 64 151 1,493
MORTGAGES 45 105 1,152
BUILDING PERMITS 201 410 3,466