Treasury to Sell Stakes in Seven Bailed-Out Banks

06/20/2012| 06:23pm US/Eastern

Recommend:

0

--Treasury to auction stakes in seven banks that received TARP money

--Government holds stakes in 335 mostly small banks

--Treasury plans to pool small bank stakes together

(Adds details on Treasury's plan throughout.)

By Sarah Portlock and Alan Zibel

WASHINGTON--The Treasury Department said Wednesday it plans to sell its stakes in seven banks that received bailout funds at the height of the financial crisis, continuing the process of winding down the rescue launched in 2008.

The public offering of preferred stock will begin around June 25 and will be priced through a modified Dutch auction, the Treasury said in a statement.

More than three years after the launch of the Troubled Asset Relief Program, or TARP, in the fall of 2008, the federal government still owns stakes in 335 banks, mostly small ones that have been unable to fully pay back the government. Treasury also holds large stakes in General Motors Co. (>> General Motors Company), insurer American International Group Inc. (>> American International Group, Inc.) and Ally Financial Inc.

The government has recovered $343 billion, or more than 80% of the $416 billion spent under TARP. Treasury has recovered $264 billion from banks that received TARP money, more than the $245 billion initially invested.

To recoup its investments, Treasury said it would auction its shares of Fidelity Southern Corp. of Atlanta (>> Fidelity Southern Corporation); Firstbank Corp. (>> Firstbank Corporation) of Alma, Mich.; First Citizens Banc Corp. (>> First Citizens Banc Corp.) of Sandusky, Ohio; MetroCorp Bancshares Inc. (>> MetroCorp Bancshares, Inc.) of Houston; Peoples Bancorp of North Carolina Inc. (>> Peoples Bancorp of North Carolina, Inc.) of Newton, N.C.; Pulaski Financial Corp. (>> Pulaski Financial Corp.) of St. Louis, Mo.; and Southern First Bancshares Inc. (SFST) of Greenville, S.C.

So far this year, the Treasury has auctioned off its preferred stock in 13 banks. That doesn't wipe out the banks' obligations--the preferred shares don't have voting rights but do come with dividends that are set to rise to 9% from 5% around the end of 2013.

Earlier this week, the Treasury Department sent a letter to 200 small banks, saying that it intends to create pools of investments in small banks that also will be auctioned off.

Due to the small size of Treasury's investments in those banks, "we believe that a pooled auction may represent the best approach to attract new private capital for community banks and recover taxpayer dollars," Michael Harris, director of the bank-rescue program for Treasury, wrote in the letter.

Banks whose securities are being considered for the pooled auction will be able to opt out and bid to repurchase their securities.

Write to Sarah Portlock at sarah.portlock@dowjones.com and Alan Zibel at alan.zibel@dowjones.com

0