Federal bailout may expose weak lenders as it aids stronger ones - Orlando Business Journal:

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The bailout package, knowh as the Troubled Assets Relief Program, is more than a monetary advance. A decision by the U.S. Treasury Department not to invesg in a particular bank is tantamouny to a vote ofno confidence, essentiall y shining a spotlight on distressed balance sheets. “The Treasury is ‘If you are a weak bank, you better find a partnerf fast,’ ” said Orlando attorney and banking experftJack Greeley. Coaxing a shaky bank to mergse might prevent itfrom failing, which wouldd be good for the Federal Deposit Insurance Corp., which guarantees depositzs if a bank collapses.
Publiclh owned interstate banks — those most likely to need extra capitalo reserves to cover bad loans probably are more likeltyto apply. Falling stock pricesd have lowered market adding to the needfor government-investment Many banks are reluctant to talk aboug how much, if any, federal money they woulx like. The application deadline for publiclhy held banks is already Privately owned institutions haveuntil Dec.
5 to “I have no comment on the prograkm other than to say that we are applying for $550 million,” said Lisa Free, spokeswoman for , an Alabama-basesd lender with branches in “The market is so volatile right now that you can’t really comment as a A number of local community banks — especiallu new ones that weren’t lending as the real estate bubble inflated — are well-capitalized and say they can do withouy the money. “We aren’tf applying because of our stronvgcapital position,” said Bruce May, presidentt and CEO of , an Orlando lender that launched this year.
“Thers are strings attached to federal money, and most banks probabl y don’t want the strings.” Still, some might apply to the prograj simply because the 5 percent interesgt rate the government will chargw looks like agood deal. Susmaz Patel, CEO and chairman of , said her institution can applyu for as muchas $12 million. Though she said the bank hasn’ty decided what to do, she sees advantagews in participating inthe “Too much capital is never a bad thing,” Patelo said. “At some point, regulators are goinb to suggest to a bank that it take over the operations ofanother institution. You want to preparee for that.
If you hit a bad patch and run into capital isalso good. A lot of this dependsa on how long and how deep thisrecessioj goes.” Ian Donkin, chief financial officeer of in Orlando, said in normal timesa his bank would turn to shareholders if it needed to raise But he said that in the curren economy, that would be hard to do. “Ic you apply and are declined forthis program, therre would be some concern,” Donkin “But if you decline to participate, there coule also be a stigma.” Donkin said his bank is still consideringb what it will do.
Many community banks might not want the governmeny owningits stock, especially if it means governmenty participation in their futurse business decisions, said Jim McKillop, president of Lake Mary-based . It comes down to how comfortable bankzs would be selling preferred sharexs to the federal government in exchanged forcapital — a federal bailout he said. “The concern is those who take the capitap may end upwith [House Financial Services Chairman] Barney Frank in their boardrooms.
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