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VOL. 125 | NO. 203 | Tuesday, October 19, 2010

Local TARP Profits Lining Up For Fed

By Andy Meek

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The federal government has so far turned a nearly $93 million profit from the investment of emergency capital into Memphis-area banks as part of its larger rescue of the nation’s financial system in 2008.

That figure is the collective amount in interest that banks as large as First Tennessee’s parent to as small as the Bank of Fayette County have paid through Friday, according to the most recent figures from the U.S. Treasury.

For now, the $93 million figure is only the government’s profit on paper. Because before the final cost of the Troubled Asset Relief Program in Memphis – and elsewhere, for that matter – can be determined, reality still has to run its course.

Banks that got TARP money make regular payments to the Treasury. The payments don’t whittle down the balance of what the banks owe, because the payments are only interest. If the balance is repaid in the future, the payments along the way represent incremental profits for Uncle Sam.

That’s why, if the more than half a dozen local banks that got TARP money repaid everything tomorrow, the government will have made almost $93 million.

That figure will be less if one or more of the banks don’t repay everything, which is more than likely what will happen.

The government probably won’t be getting back all $44 million it invested in Starkville, Miss.-based Cadence Bank, for example.

Cadence, which has a handful of branches in Shelby County, is in the process of selling itself to Community Bancorp LLC, a Houston-based private equity firm. As part of the deal, CDC has offered to pay off Cadence’s TARP obligation for $38 million.

Even though the government would be getting back less money than it invested in Cadence, the $38 million is more than the $30.1 million Trustmark Bank offered to pay under a previous merger agreement Cadence nixed in favor of CBC. For that, and a host of other reasons, it’s still difficult at this point to give a final grade to the TARP program from a local standpoint.

Regulators generally want banks to keep more capital on hand than they did during the boom years earlier in the decade. And more than one Memphis bank is in the process of raising fresh capital.

Executives with First Horizon National Corp., the parent of First Tennessee Bank, have said they’re ready to pay back First Horizon’s $866 million in TARP money as soon as possible. And they’re in talks with regulators along those lines.

Like First Horizon, most of the local banks that got TARP capital are still hanging on to it. Some banks may want to exchange their TARP capital for lower-cost federal money intended for other purposes. Which is what Tri-State Bank of Memphis recently did.

Tri-State Bank has exchanged its nearly $2.8 million in TARP money for a lower-cost infusion of federal capital that’s intended to boost bank loans to small businesses.

Magna Bank has taken the unusual route of repaying its TARP investment in chunks, revisiting each quarter whether the time is right to pay back another chunk.

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 64 87 1,429
MORTGAGES 39 60 1,107
FORECLOSURE NOTICES 0 6 196
BUILDING PERMITS 92 209 3,265
BANKRUPTCIES 42 84 837
BUSINESS LICENSES 21 23 352
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0