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VOL. 124 | NO. 145 | Monday, July 27, 2009

Banks Pay Back $30M in Interest on TARP Money

By Andy Meek

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The federal government has collected almost $30 million in interest payments from Memphis-area banks that got emergency capital starting last year, according to a new report from the U.S. Treasury.

That figure includes payments from Memphis-based institutions such as First Horizon National Corp., the parent company of First Tennessee Bank, Magna Bank and Tri-State Bank of Memphis, among others. Also included are banks that operate branches in Shelby County and are based in neighboring states like Mississippi.

Trustmark and Cadence Bank are examples of banks that fall in the latter category.

The $30 million in local payments does not count those from large national banks such as Regions Financial Corp. and SunTrust Banks Inc. that operate branches in Memphis and likewise accepted capital through the Troubled Asset Relief Program.

Talk about cash flow

The Treasury report is part of regular updates the government provides on its unprecedented rescue of the financial markets begun last year, a major plank of which calls for banks selling shares to the government in exchange for much-needed capital. Through last week, Uncle Sam had spent more than $204 billion buying ownership stakes in hundreds of banks around the country, including a handful in the Memphis market.

The government collected almost $6 billion in dividend payments from the banks in which the Treasury bought preferred shares through the end of May. Said another way, that $6 billion figure is the return being generated from the investment of tax dollars into the banking system so far.

Interest payments from Memphis-area banks participating in the TARP program represent only a fraction of the government’s total return on TARP investments. And all told, banks in the Memphis area have received more than $1.1 billion in emergency federal capital when nearby institutions like Mississippi-based Trustmark, Cadence and DeSoto County Bank are included.

That $1.1 billion worth of investments has generated the nearly $30 million in locally generated interest payments through the end of May. To put that into perspective, the billions of dollars in aid the government has pumped into struggling domestic automakers like General Motors and Chrysler have generated more than $200 million in interest payments for the government so far.

Strings attached

Most of the government’s money went to – and the lion’s share of the local interest payments thus far has come from – First Horizon.

Speaking with analysts several days ago during the company’s second quarter earnings presentation, FHN president and CEO Bryan Jordan said the bank is not in a hurry to repay the TARP money and is keeping tabs on changes in the broader economy to decide when the time is right to do so.

Repaying the money is a goal of all banks participating in the TARP program. Banks pay a 5 percent dividend on the TARP money for the first five years they keep it. After that, the payment goes up to 9 percent, so the banks have an incentive to repay the money as soon as they can.

Some of the largest banks already have, although none from Tennessee have done so. Kevin Reynolds, an analyst at Wunderlich Securities in Memphis, said he doesn’t think any local banks will do so before the end of the year, and Jordan elaborated further on his institution’s piece of the rescue money.

“Given our strength, you may be wondering about First Horizon’s ongoing participation in the capital purchase program,” Jordan said. “We would like improved clarity around the economic outlook. Also (the) funds are a relatively inexpensive source of capital. We are therefore not in a rush to repay TARP but intend to work with our regulators to repay the funds at a prudent time as the economy stabilizes and credit trends improve.”

First Horizon, which got a little more than $866 million in TARP money, paid almost $22 million in interest to the government through the end of May. Other payments came from institutions such as Magna Bank, which got almost $14 million in TARP money and has paid almost $300,000 in interest to the government so far.

The Bank of Fayette County, the holding company of which sold a $6.2 million stake to the government, has paid a little more than $105,000.

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