Several large banks operating in Colorado have raised their hands to receive an injection of capital from the federal government under the $700 billion Troubled Asset Relief Program.
The money was initially slated to buy up troubled mortgage-backed securities, but the U.S. Treasury decided to funnel up to $250 billion directly to banks willing to sell the government preferred shares and warrants for an equity stake.
The taxpayer support comes with an expectation, but not a requirement, that banks lend the money out.
“Lenders who receive public funds should use those funds to lend,” Christopher Dodd, U.S. Senate Banking Committee chairman, urged Thursday. “Many are failing to do so.”
But bankers say they don’t want to make imprudent loans, and some plan to use the money to acquire competitors.
Bankers are divided between those who see the government money as an affordable way to build capital to weather a recession and those fearful of making a Faustian bargain with the government, said Don Childears, president and chief executive of the Colorado Bankers Association.
The program’s terms can be changed at any time, Childears said. So the hands-off approach of the Treasury Department under Henry Paulson could become a heavy hand of congressional mandates.
Dodd said banks must “preserve home ownership.”
Publicly traded banks have until today to apply, and most have, although a few such as UMB Financial and the parent of Colorado State Bank and Trust have said no.
“In today’s uncertain environment, more capital is better,” said Jon Lorenz, president of CoBiz Financial, one of the local banks to apply. “You don’t want to leave cheap capital laying around.”
CoBiz didn’t need the money and initially waited to see whether investors would penalize those that participated, Lorenz said. They didn’t. The 5 percent interest rate banks will pay on the preferred shares is well below the 9 percent and higher rates that private investors want for unsecured debt, he said.
The first round of financing, involving $125 billion, went to the nation’s giant banks, whether they wanted to participate or not. Wells Fargo, which has the largest share of deposits in the state, and JPMorgan Chase were in that group, which has already received funds.
Several regional banks operating in the state have won preliminary approval to participate, including U.S. Bancorp, KeyCorp, TCF Financial and Zions, which operates Vectra Bank Colorado. CoBiz, United Western and Guaranty Bank, all based in Denver, also have applied.
The government hasn’t yet said whether privately held banks, a large group that includes FirstBank Holding Co. of Lakewood, can participate.
“Based on the terms given to the public companies, it is unlikely we would participate,” said Dave Baker, First Bank’s chief operating officer.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
