The federal government is ready to wind down the 3-year-old bank rescue program known as TARP, and nearly two dozen lenders in Georgia are still on the hook to taxpayers.
In recent weeks, the U.S. Treasury Department notified banks that received money through the Troubled Asset Relief Program that it has hired advisers to determine how to wrap up its bank investments.
In all, more than two dozen Georgia institutions received TARP funds totaling about $6.3 billion. Only three, including Georgia’s largest, SunTrust Banks, have fully repaid.
Among those that haven’t are the second and third largest Georgia-based banking companies: Synovus Financial, a large banking company based in Columbus, and United Community Banks of Blairsville.
Bankers and industry experts told The Atlanta Journal-Constitution they expect most remaining TARP banks in Georgia to try to eventually repay the money through improved earnings, while others might try to raise cash by selling new shares. Some, ultimately, might not be able to repay on their own and could be acquisition targets by stronger rivals.
Treasury could also alter payment terms or sell its stake in the remaining TARP banks to private investors, say industry watchers, who expect the government to unveil its recommendations early this year.
As of November, 387 banks nationwide — mostly smaller institutions — held $17.3 billion in TARP funds, according to a report by Keefe, Bruyette & Woods.
In Georgia, 23 TARP recipients that received more than $1.4 billion have yet to fully repay, including two small banks that failed, wiping out the government’s investment.
Almost all of Georgia’s remaining TARP recipients are making scheduled dividend or interest payments on the government’s preferred shares.
The portion of TARP that went directly to banks, though politically unpopular, has returned a modest profit for the government. But the $700 billion TARP as a whole, which stretched beyond banks and included aid to insurance giant AIG and automakers General Motors and Chrysler, remains in the red.
Washington and much of the public have grown tired of TARP, and Treasury appears poised to close the program before the 2012 election, said Chris Marinac, bank analyst with FIG Partners.
Terms of TARP get much steeper for recipients on the fifth anniversary of disbursal, including an increase in dividend rates paid to the government from 5 percent to 9 percent.
Before TARP loans are repaid, regulators want banks that received taxpayer funds to prove they are profitable and that the worst of the financial crisis is behind them, said Chip MacDonald, a banking attorney with Jones Day in Atlanta.
Banks that have yet to repay haven’t for numerous reasons. Some are so small it’s difficult to sell stock or they don’t want to hurt existing shareholders. Others have yet to overcome all their problems or don’t feel confident enough to repay the funds given continued economic uncertainty.
Banks are eager to shed the stigma and operational challenges of having TARP, MacDonald said. Dividends for investors are limited and executive pay may be scrutinized, making it harder to get and keep talent.
Blairsville-based United Community Bank, which received $180 million in federal aid, returned to profitability in the second quarter last year after three years of losses. A one-time charge kept United out of the black in third quarter, but the bank expects to be profitable in 2012.
Rex Schuette, United’s chief financial officer, said improved earnings will drive the bank’s ability to repay fully TARP. He expects the bank to pay the principal in installments in early 2014.
After a brief suspension of its TARP dividend payments earlier last year, United raised $380 million in new investor capital to help backstop against credit losses and resumed paying the government dividends. United would prefer not to go to the stock market again for fear of further diluting shareholders’ value, Schuette said.
United has regular contact with a Treasury-appointed asset manager who oversees the government’s investment, Schuette said. United hasn’t felt pressure to hastily repay, he said.
“They’ve gotten an excellent return on this from their standpoint,” Schuette said, referring to $24.3 million in dividends United has sent to the government through October.
Kessel Stelling, president and CEO of Synovus Financial, the Columbus-based parent of 30 community banks including Bank of North Georgia, said in the company’s third quarter earnings call that the company could finish its TARP payback in 2012. Synovus returned to the black for the first time in three years in the July-September quarter and has predicted improving results.
Synovus received nearly $1 billion in TARP aid during the crisis and is current on its dividends. Synovus has paid $128.5 million to the Treasury through October. The bank hopes easing credit problems and other improvements could help win regulators’ favor to fully repay the Treasury.
Some smaller banks are mending slowly and say that’s reflected in the lack of repayment so far.
“We always intended to pay it sooner rather than later,” said Jim Miller, chairman of Fidelity Southern Corp., the parent of Buckhead-based Fidelity Bank. Fidelity received $48.2 million in TARP and is current on dividends.
Miller said his bank used the funds as intended, making small business loans and auto and other consumer loans through the crisis.
TARP’s wrap-up would bring to a close one controversial chapter in a series of unprecedented steps the government took to stave off financial Armageddon.
For some, TARP is an emblem of wasteful government spending that bailed out the excesses of Wall Street without doing enough to help Main Street.
“People hate a bailout,” said Walt Moeling, a bank attorney with Bryan Cave in Atlanta, “but had we not bailed them out, I shudder to think how bad of a depression we’d be in today.”
GEORGIA'S TARP BANKS
State banks that have paid it off
Name | Amount received | Principal paid | Interest or dividends paid to Treasury
SunTrust Banks | $4.85 billion | $4.85 billion | $568 million
Georgia Commerce Bank | $8.7 million | $8.7 million | $961,471
Hamilton State Bank | $7 million | $7 million | $757,702
The largest state banks that haven’t
Name | Amount received | Interest or dividends paid to Treasury
Synovus Financial | $967.8 million | $128.5 million
United Community Banks | $180 million | $24.3 million
Ameris Bancorp | $52 million | $7.1 million
Fidelity Southern | $48.2 million | $6.4 million
Failed TARP banks
Tifton Banking Co., which received $3.8 million. It paid back $223,208 before it shut down.
One Georgia Bank, which received $5.5 million. It did not pay back any of its TARP commitment before it closed.
Source: October 2011 report of the Special Inspector General for the Troubled Asset Relief Program
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Credit: Jason Getz / Jason.Getz@ajc.com