Georgia bankers weigh pros, cons of federal cash

Bankers across Georgia are facing a pressing, and unprecedented, question: should they seek a direct investment from the federal government?

About 100 bankers are expected to attend a workshop in Atlanta on Friday to explore the pros and cons of selling a stake in their companies to the U.S. Treasury.

It’s a big decision, banking experts say, with a looming deadline. Publicly traded banks across the country have until Nov. 14 to apply for funds through the Troubled Asset Relief Program, or TARP, the government’s $700 billion effort to stabilize the nation’s battered financial system.

Georgia bankers are raising numerous questions, said Joe Brannen, president of the Georgia Bankers Association, which is putting on Friday’s event.

Among the concerns: Will the markets punish banks that turn down the chance at an infusion of public cash? Will Congress slap new restrictions on how the money can be used? Will banks that receive aid be seen as weak, or will the funds serve as a stamp of approval from the government?

“It’s a decision unlike anything they’ve ever faced, and there are still unanswered questions,” said Walt Moeling, a banking lawyer with Powell Goldstein who is scheduled to speak at Friday’s workshop.

The government is hoping that its historic decision to invest directly in banks will not only shore up the system but also boost lending — a move that could kick-start the sputtering economy.

The state’s biggest banks, SunTrust and Synovus, have already applied for federal funds. The government is investing $3.5 billion in SunTrust, while Columbus-based Synovus is still waiting to hear back from the Treasury.

Many of the state’s smaller publicly traded banks are still trying to determine the best course of action. The state’s numerous private banks, meanwhile, are waiting for the government to release details of how the program would be extended to them.

Dan Blanton, CEO of Augusta-based Georgia Bank & Trust, said his bank is on solid financial footing and doesn’t need any federal funds. But he worries that if the bank doesn’t take part in the program, some people may incorrectly assume his company wasn’t deemed strong enough for government support.

“I would be concerned with public perception that we are weaker than they thought we were,” said Blanton, incoming chairman of the American Bankers Association’s Community Bankers Council.

Selling shares to the government will also dilute the holdings of existing shareholders, and some bankers are philosophically opposed to the government taking ownership in banks.

But in the end, most banks will decide to take part in the government program, said Moeling, the banking attorney. He said banks should consider it similar to an insurance policy.

“My simple test for clients is to look at your asset portfolio and try to determine how many of your borrowers can withstand a recession that could go two to three years,” he said. “When clients look at it this way, most of the time their other concerns go away.”

The government’s terms — 5 percent returns for the first five years — are also generous, experts say. Typically, new shareholders that invest in banks demand returns of up to 15 percent, said Sal Inserra, a partner with Atlanta accounting firm Porter Keadle Moore who plans to speak at Friday’s workshop.

Banks need capital to shore up loan losses, but “there is no capital on the free market,” he said. “There are no buyers for bank stock.”

The program is drawing criticism from some politicians, including Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who are worried that banks will hoard the government’s cash rather than lend it out.

That wouldn’t be the case at Georgia Bank & Trust should the company decide to take part in the program, said Blanton, the bank’s CEO. The company could receive $30 million from the government, enabling up to $300 million in additional loans, he said.

“We would not accept capital and sit back and do nothing,” he said.