This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Dilution Risk Grows With TARP Deadbeat List

Stocks in this article: STSA PCBC HMPR TSFG CRBC SAGN TD

WASHINGTON ( TheStreet) -- The list of TARP deadbeats has been growing in size and scope, and proposed changes in capital requirements could put even more institutions at risk of falling behind on their bailout tabs with Uncle Sam.

The U.S. has tallied $2.6 billion worth of failed TARP investments to date, and lost part of its investments in four other banks in exchange for private recapitalization. Initially worth $911 million, the Treasury Department accepted haircuts ranging from roughly 17 cents on the dollar to 38 cents on the dollar, to woo private equity investments for Sterling Financial (STSA - Get Report), Pacific Capital (PCBC) and Hampton Roads (HMPR - Get Report) , and secure a buyout deal for South Financial Group (TSFG).

The government lost $216 million on the South Financial deal , though it's hard to tell the ultimate outcome for the other transactions, since the government will continue to hold a stake over time.

Perhaps more troubling is a growing list of delinquent banks. That list now stands at 81 firms that represent $2.2 billion in taxpayer dollars. Those numbers seems sure to grow when new capital rules are implemented, since the financial reform bill may not allow banks to use trust preferred securities in Tier 1 calculations. The proposed rule change will leave many small banks struggling to plug capital holes all at the same time. It could also force the Treasury to convert more of its preferred stock into common equity, or take additional haircuts to incentivize private players to cough up more cash.

Still, the size of the Treasury's at-risk investments stood at an average of just $28 million per delinquent bank, as of April 30. The largest, a $300 million investment in Citizens Republic Bancorp (CRBC) remains a concern, but with capital levels well above the "10-6-5" ratios that the Federal Reserve requires of a well-capitalized bank, Citizens Republic may not yet be entirely in the danger zone.

The other worrisome investment was $1.55 million put into Saigon National Bank (SAGN). The West Coast bank has missed six dividend payments, thereby giving the Treasury the right to elect two board members, as it did with American International Group (AIG) earlier this year .

There are 660 or so banks that have yet to repay TARP, but have stayed current on quarterly dividends at the same time. While many of them seem to have a good grip on their troubled loan portfolios, the financial reform bill's proposed capital standards pose a different kind of threat. Rochdale Securities analyst Richard Bove recently identified 58 banks that are "most in jeopardy" - in other words, most need to raise capital - if the strict standards pass.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,191.37 -195.84 -1.13%
S&P 500 2,002.16 -27.39 -1.35%
NASDAQ 4,637.9940 -43.5030 -0.93%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs