Chapter 7 Martellini US Rescue Fund

Chapter 7 Martellini US Rescue Fund - associated Press...

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Unformatted text preview: associated Press Secretary Henry Paulson, speaking at the Treasury Department on Monday. wants banks “to deploy, not hoard.’ thelr cash Infusions from the US. U.S. Rescue Fund Is Likely to Foster Bank Takeovers BY DEBORAH SOLOMON Ann DAVID ENRICH WASHINGTON—The federal government’s $250 billion plan to bolster U.S. financial institu- tions is aimed at persuading healthy banks to lend again. But some banks say they intend to use the funds to buy rivals, not necessarily to make new loans. Treasury Secretary Henry Paulson has repeatedly empha- - sized that the government’s in» vestment is to restore confidence in the banking sector, so banks will lend again and private inves- tors will put up capital for banks. "Our purpose is to increase the confidence of our banks, so that they will deploy, not hoard, that capital,” Mr. Paulson said on Monday. ' If the banks use the govern ment funds to pay for acquisi- tions, it could prove controver- sial. Taxpayers essentially would be footing the bill as strong banks gobble up their weaker peers. Such acquisitions proba- bly would provide less of a boost to the economy than would new bank lending. BBSEI' Corp.’s chief executive. John Allison. said hisWinston—Sa- lem, N.C., bank will "probably par- ticipate” in the government capi- tal infusions, in part to help fund acquisitions. “We think that there are going to be some acqui- sition opportunities, either now MG" flflfi or in the near future, and this is a relatively inexpensive way to raise capital” for that, Mr. Allison said in a conference call discuss- ing the bank’s third-quarter re- sults. Mr. Allison didn’t say whether government money would prompt BB&T to open its lending spigot. He said regulators were encouraging the bank to apply to the program. The Treasury announced on Monday some criteria it would use to pick banks in which it Would invest, including institu- tions “that are going to be able to put the money to good use," a se- nior government official said. The Treasury will make invest» ment decisions based on factors such as a bank’s health and man- agement, senior officials said. The Treasury also will consider whether a bank is involved in or contemplating a merger transac- tion, though it doesn’t want its money to be used for that pur- pose, the officials said. ”If a healthy institution is making an acquisition, we would look very favorably on that,” a se- nior government official said. The goverrunent views consolida- tion as a good thing if it helps weaker banks survive instead of failing. The Treasury also said on Monday that it will not make pub- lic the names ofbanks that are re- jected, and will announce only those that qualify for assistance. That move is designed to avoid tarring any company with being deemed too troubled to receive government cash. Government officials are wrestling with whether banks will need to inform shareholders that they have been rejected by the government. The Securities and Exchange Commission de- clined to comment. Companies are typically forced to disclose in SEC filings any “material" infor- mation. Zions Baneorp, at Salt Lake City-based bank hurt by losses on real-estate loans, expects to ap- ply to sell the government be- tween $500 million and $1.5 bil’ lion in preferred stock, and may use some of the money to fund its acquisitions. Chief Financial Officer Doyle Arnold said on a recent earnings conference call that Zionsmaybe- come a bit freer in its lending with new capital in hand, but not dramatically so. In addition to making more loans, Zions plans to use the gov- emment money "to take advan- tageofwhat we wouldexpectwill be some acquisition opportuni- ties, including some fairly low- risk FDIC-assisted transactions in the next few quarters,” Mr. Ar— nold said. Executives at many banks said they haven’t decided whether to apply. Some said they are unlikely to participate, con- tending they don’t need more cap- ital, orare wary of government to strictions in areas such as divi- dend payments. Banks have until Nov. 14 to submit an application to their primary regulators. Ineamings calls, James Rohr, CEO of Pittsburgh-based PNC Fi~ nenclal Services Group Inc., called the government plan “very attractive,” and said "we're considering it very seri- ously.” Paul Beideman, CEO of Associated Bane-Corp, a mid- size lender in Green Bay, Wis, said it looks like “a pretty attrac— tive alternative [to other capital sources], but the devil certainly is in the details.” Separately, Democrats con- tinued to push the Bush adminis» tration to centralize its focus on preventing avoidable foreclo- sures, and asked the White House to tap Federal Deposit ln- surance Corp. Chairman Sheila Bait to lead a government-wide effort to monitor activities in this area. “Giving one official clear re- sponsibility, particularly one as knowledgeable on the subject as Chairman Bair, will improve the effectiveness of the efforts of the federal government at a time when prompt and efficient action is most urgently needed,” Reps. BameyFrank(D.,Mass.) and Max- ine Waterslll.. Calif.) wrote Presi- dent Bush on Monday. /0 4/08 ‘ ...
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