UCBH's Failure Shaping Up as TARP Loss

NEW YORK (TheStreet) -- The U.S. Treasury's $298 million investment in UCBH Holdings (UCBH), which failed Friday, was "typically bad," according to a professor who has frequently criticized the Troubled Asset Relief Program for investing at above market rates.

UCBH looks to become the second loss under the TARP, following the bankruptcy filing of CIT Group (CITGQ.PK) on Nov. 1. There is still a small chance the government could recoup some of its CIT investment, and a Treasury spokeswoman did not respond to an e-mail from TheStreet, though according to a MarketWatch report, a Treasury spokeswoman "confirmed" UCBH "could" be the second loss from TARP.

The Treasury bought UCBH preferred shares and warrants in late October 2008, demanding a 5% dividend, well below the 9% yield on outstanding UCBH convertibles securities, says Linus Wilson, a finance professor at the University of Louisiana.

"This investment, when made, seems to be typically bad as opposed to the CIT Group, $2.33 billion TARP investment, which was outrageously bad," Wilson wrote in an e-mail to TheStreet.

Though UCBH is first TARP-funded bank to fail Wilson does not believe it will be the last.

"Any 'healthy bank' receiving TARP funds should not feel like it will get special treatment from the FDIC [Federal Deposit Insurance Corp.] because taxpayers are preferred stockholders. I would not be surprised if many more TARP recipient banks were pushed into receivership by the FDIC in the coming months," Wilson writes.

Wilson does not believe the FDIC should give special treatment to TARP-funded banks. "We don't want to create over seven hundred banks that cannot fail because the government made a bad investment," he writes.