LITTLE ROCK — The U.S. Department of the Treasury has told more than 200 banks that received money under the Troubled Asset Relief Program that the government plans to auction the preferred shares it owns in the institutions.
The department has not publicly disclosed which banks it has told of the possible sale. The 200 banks represent more than half of about 340 institutions that have not repaid the government funds, which were made from 2008 to 2010 to help the banks recover from the recession.
The letter the Treasury sent to the banks last month said their preferred shares would be sold in pooled auctions, where shares of several banks would be auctioned together to the highest bidder.
It is possible that one bank’s shares could be divided among several auctions, Michael Harris, director of the Treasury program, said in the letter. The Treasury also cannot require the banks to buy back the shares, he noted in the letter.
Randy Dennis, president of DD&F Consulting Group, a Little Rock bank consulting firm, said the auctions are a good idea because the government doesn’t need to be in the business of owning shares in banks.
“It’s pretty clear the Treasury wants to wash its hands of this,” Dennis said. “They want to get out of it. But I’m certainly not opposed to that. I don’t think our government needs to be in the business of owning investments in banks. So the sooner it divests itself of them, the better.”
The eight Arkansas banks that have not bought back the shares the Treasury Department owns and the amounts they received are: Rogers Bancshares in Rogers, parent of Metropolitan National Bank in Little Rock, $25 million.
Rogers Bancshares has missed 11 dividend payments and is $3.7 million behind in the payments. The Treasury has appointed two directors to the bank’s board.
Chambers Bancshares, parent of Chambers Bank of Danville, $19.8 million.
OneFinancial Corp., parent of One Bank & Trust in Little Rock, $17.3 million.
OneFinancial has missed one payment and is $351,000 behind in the payments.
White River Bancshares, parent of Signature Bank in Fayetteville, $16.8 million.
White River Bancshares has missed six dividend payments and is $1.4 million behind in the payments. White River has declined the Treasury’s request to have an observer attend board meetings.
Community First Bancshares, parent of Community First Bank in Harrison, $12.7 million.
Riverside Bancshares, parent of Riverside Bank in Sparkman, $1.1 million.
Corning Savings and Loan in Corning, $638,000.
Southern Bancorp, parent of Southern Bancorp Bank in Arkadelphia, received $11 million from the Treasury in 2010. Southern later converted to the Treasury’s Community Development Capital Initiative program, getting an-other $22.8 million from the government for a total investment by the Treasury of $33.8 million.
Southern has not bought back the shares from the government but the dividend rate for community development banks is substantially lower than the 5 percent of other banks under the Troubled Asset Relief Program. The Treasury has said it will not auction off its interest in community development banks like Southern.
Banks that have bought back the Treasury shares and the amount repaid include Bank of the Ozarks of Little Rock, $75 million; Liberty Bancshares of Jonesboro, $57.5 million; Home BancShares of Conway, $50 million; and First Federal Bancshares of Harrison, which received $16.5 million. Bear State Financial of Little Rock, which bought First Federal, paid the government $6 million to cover the government’s investment.
Banks that sell preferred shares to the government through the Troubled Asset Relief Program must pay a 5 percent annual dividend on the money.
That rate will increase to 9 percent in 2014.
White River Bancshares has received the letter from the Treasury, said Gary Head, chief executive officer of White River Bancshares and Signature Bank.
He believes that all banks that received funds through the Troubled Asset Relief Program will have their shares sold, possibly as early as November, Head said.
Head isn’t concerned about any new investors wanting to add members to White River’s board.
“We have seven directors and we don’t pay them,” Head said. “They have all the liability of the bank. How many people do you know who would want to jump on that deal? So you want to come down here and work and have all the liability but not get any of the money? Even if they do, they wouldn’t have a majority of the votes.”
Head thinks the purchase of the Treasury’s shares could benefit White River, which is under federal regulators’ sanctions.
“I bet they wouldn’t pay full price, since we’re under an order,” Head said. “If they pay [the government] a nickel on the dollar, at some point I may be able to pay [the new investors] 10 cents on the dollar and get out.”
John Chambers, chairman and chief executive officer of Chambers Bancshares, which owns Chambers Bank in Danville, said his bank hasn’t received the letter from the Treasury.
Chambers said he wishes his bank could afford to repay the money.
“But unfortunately with the economy as it is, we don’t have the luxury of doing that,” Chambers said.
The Treasury Department paid more than $245 billion to 707 banks for preferred shares under the Troubled Asset Relief Program. It has received about $264 billion in repayments and dividends, meaning it has returned a $19 billion profit, Harris said in the letter to the banks.
Business, Pages 65 on 07/15/2012