VOL. 124 | NO. 200 | Monday, October 12, 2009
FOCUS Financial Services
Treasury: Local Banks Have Paid $42M in Interest
By Andy Meek
Memphis-area banks have paid more than $42 million in interest to the federal government as part of the strings attached to emergency capital they received starting last year.
The desperately needed cash was doled out to banks to help them ride out the economic storm, and was one of the most significant planks in the government’s rescue of the financial system. Banks are making quarterly interest payments on those capital infusions, and the tally from banks in and around Memphis comes from a new report from the U.S. Treasury.
The $42 million figure includes payments from Memphis-based institutions like First Horizon National Corp., the parent company of First Tennessee Bank, and smaller banks such as Magna Bank and First Alliance Bank. It also includes payments from banks with branches in Memphis and Shelby County but that are headquartered in neighboring markets.
Mississippi-based Trustmark and Cadence banks fall in that category.
Excluded from the $42 million are payments from large national powerhouses such as SunTrust, Regions and Bank of America, all of which operate a bevy of branches in the Memphis area.
Almost as soon as the details were cobbled together, the program under which Uncle Sam wrote checks to hundreds of banks around the country was derided by critics as a “bailout.” Bankers have been just as insistent that label mischaracterizes the program.
Its official name is the Troubled Asset Relief Program. Under a sub-piece of TARP called the Capital Purchase Program, banks sold preferred shares to the government in exchange for fresh capital. They can buy those shares back down the road.
“It’s not a bailout. I’m paying it back,” said McCall Wilson, president and CEO of The Bank of Fayette County, the holding company of which got a little more than $6 million in TARP money at the beginning of the year.
Repaying the TARP money is the ideal banks are shooting for sooner rather than later. 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, giving the banks an incentive to repay the money quickly.
No hurry to get out
During Trustmark’s second quarter conference call with analysts this summer, bank chairman and CEO Richard Hickson told analysts his bank won’t be repaying the money anytime soon. Trustmark will release its third quarter results at the end of this month.
“We’re still giving the TARP very thoughtful evaluation, and we’ll address TARP when we feel it’s appropriate – when we have seen enough moderation relative to the analysis of our portfolio,” he said. “We have made a decision that we don’t think it’s good to speculate on when we might address the TARP issue. We’ll tell you immediately when we do.”
In a recent interview with The Daily News, First Horizon president and CEO Bryan Jordan said his bank, too, is taking a wait-and-see approach.
“From our standpoint, it’s been a valuable source of capital,” Jordan said. “It’s been an effective source of capital. Until we see the economy with real traction, there’s no rush from our perspective to get it repaid.”
The latest quarterly Treasury report gives a detailed snapshot of the return being generated so far on the investment of taxpayer money into the banking system.
Interest payments from Memphis-area banks participating in the TARP program represent a tiny slice of the government’s return so far, with the government having collected more than $9 billion in dividend payments through Aug. 31.
The most recent information available shows the government having pumped TARP capital into 685 banks, large and small, around the country. More than $204 billion is the collective amount that’s gone out the door to each of those banks, including a handful in the Memphis-area market.
All told, banks in the Memphis area got more than $1 billion, a figure that lumps in nearby banks including DeSoto County Bank, the Bank of Fayette County, Trustmark and others.
Of those banks, the largest disbursement and the biggest interest payment so far has come from First Horizon, which got a little more than $866 million in TARP money and has paid more than $32 million in interest, according to the latest figures.
Among other Memphis-area TARP recipients, Magna Bank – which got almost $14 million – has paid almost $485,000 in interest so far. The Bank of Fayette County has paid a little more than $190,000.