Bloomberg News

Treasury Starts Auctions of Shares in 12 Bailed-Out Banks

July 23, 2012

The U.S. Treasury Department said it started selling stakes today in 12 banks that received taxpayer funds after the financial crisis as the administration seeks to wind down its crisis-era bailout programs.

The Treasury said it was beginning auctions of preferred stock and subordinated debt positions in the banks, which include Marquette National Corp. of Chicago, with about $1.7 billion in assets, and Exchange Bank of Santa Rosa, California, with about $1.6 billion.

The auctions are part of the Obama administration’s efforts to get repaid for initiatives such as the Troubled Asset Relief Program, which Congress approved in 2008 to prevent further damage from the financial crisis. The administration has said the bailouts helped prevent a deeper recession, while Republican presidential candidate Mitt Romney has slammed President Barack Obama for expanding the budget deficit to fund stimulus programs and loans to General Motors Co. and Chrysler Group LLC.

The election in November “is a factor” motivating the Treasury to sell the bank shares quickly, said Kip Weissman, a partner representing banks for Luse Gorman Pomerenk & Schick P.C. in Washington. “The administration wants this stuff out, wants it resolved. There’s a lot of investor interest, but they’re going down the food chain in terms of quality, and that will be the issue.”

TARP Banks

Most of the 323 bailed-out banks still in TARP will be unable to repay $10.8 billion in taxpayer funds they hold, according to the Treasury. For those banks that don’t repay, the administration is trying to sell its stakes in the remaining lenders through auctions, and if it can’t, it will then pool together shares of different institutions.

The Treasury estimates that taxpayers will make a $20 billion profit from the bank portion of TARP. Most of that gain comes from funds repaid by firms including Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. That will offset losses that Treasury has said it expects from smaller institutions.

The administration is also trying to unwind its stakes in companies including American International Group Inc., General Motors and Ally Financial Inc. The Treasury has a 61 percent stake in AIG, down from 92 percent. The government holds 32 percent of the common stock of General Motors and 74 percent of Ally.

Residential Capital LLC, the bankrupt mortgage unit of Ally, filed for bankruptcy May 14 with plans to sell most of its assets to Fortress Investment Group LLC and companies it controls.

Banks Auctioned

The other 10 banks whose stakes were offered today are CBS Banc-Corp. of Russellville, Alabama; Commonwealth Bancshares Inc. of Louisville, Kentucky; Diamond Bancorp Inc. of Washington, Missouri; Fidelity Financial Corp. of Wichita, Kansas; First Community Financial of Joliet, Illinois; First Western Financial Inc. of Denver; Market Street Bancshares Inc. of Mount Vernon, Illinois; Premier Financial Bancorp Inc. of Huntington, West Virginia; Park Bancorporation of Madison, Wisconsin; and Trinity Capital Corp. of Los Alamos, New Mexico.

Under TARP, originally approved by Congress as a $700 billion program to rescue financial institutions, the Treasury put cash into banks in exchange for equity stakes. Many bailout recipients repaid TARP funds, plus interest payments on preferred shares.

To contact the reporters on this story:

To contact the reporters on this story: Cheyenne Hopkins in Washington at chopkins19@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net;


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