Some US bank bailout holdings down $8 billion

Shares in virtually every bank that received federal money have remained below the prices the government negotiated.

Likewise, President Bush said there‘s no quick fix for the battered economy.

Kashkari, speaking in Washington to a Mortgage Bankers Association conference, insisted that the White House has invested tax dollars in "very high-quality institutions of all sizes." Most of the Treasury Department‘s investments since late October have been in preferred bank stocks, more than $180 billion worth, with investments in giants like Citigroup and JPMorgan Chase, and many small community banks. But the government also negotiated options to buy up to 1.2 billion shares of common bank stock that was valued at $27 billion to serve as a potential financial bonanza for taxpayers.

The government can exercise its options to buy the common stock anytime over the next decade, but the options were "immediately exercisable," according to banks‘ securities filings.

Potential losses among these common stocks include nearly $3 billion for the administration‘s biggest deal, a $45 billion injection into Citigroup Inc. The government gave the New York-based giant $25 billion on Oct. 28. Besides preferred stock worth $1,000 per share, the deal included warrants to pick up 210 million shares of common stock at $17.85. In late November, the White House put together a plan to give Citigroup another $20 billion. The deal also included warrants to pick up 254 million shares, with the price set at $10.61.

The government would only earn a profit if the share price eventually exceeds the negotiated warrant price. Under the bailout plan, the common stock warrants — effectively treated as stock options for non-employees — would allow taxpayers to share the wealth as banks recover.

The Treasury Department projects that the $180 billion in preferred stock will generate roughly $9 billion per year during the first five years and $16.2 billion per year afterward, assuming the banks remain solvent.

Treasury Secretary Henry M. Paulson Jr. describes the cash infusion as "an investment, not an expenditure."

The AP‘s analysis found that only HF Financial Corp. of Sioux Falls, S.D.; First Horizon National Corp. of Memphis, Tenn.; Associated Banc-Corp of Green Bay, Wis.; and First Niagara Financial Group of Lockport, N.Y., would make money for taxpayers if the common stock options were exercised today. These are small banks, far removed from the wheeling and dealing of federally insured giants that ravaged the global economy by making bad bets on subprime mortgages, according to records filed with the Securities and Exchange Commission.

The South Dakota bank, for example, has a market value of $54 million, a fraction of the size of JPMorgan Chase, the nation‘s largest. The Treasury Department gave $25 million to HF Financial on Nov. 21 in exchange for 25,000 shares of preferred stock and warrants that allow taxpayers to buy 302,000 shares at $12.40 within the next decade. For now, it‘s a good deal; the bank‘s stock is trading around $13. If the government exercised its option to buy HF stock today, taxpayers would collect $224,000.

More companies would be in the black, but the government used a 20-day stock price average to set the warrant price, meaning it willingly negotiated to pay roughly 25 percent more than the stock was worth on the day it signed the deals on behalf of taxpayers.

Nara Bancorp, created in 1989 to serve Southern California‘s growing Korean-American community, borrowed $67 million from taxpayers on Nov. 21, when its stock was trading at $7.50 per share. But the government negotiated the option to buy 1 million shares of Nara common stock at $9.64, higher than its stock is currently trading.

"It‘s a complete mistake to think this is a good investment for us," said Paola Sapienza, a finance associate professor at Northwestern University‘s Kellogg School of Management, who spearheaded a September protest of the bailout by more than 200 of the nation‘s leading economists. "It‘s a gamble. It‘s like going to Las Vegas."

At least 10 more banks announced Friday they were receiving more than $1 billion in bailout money. EastWest Bancorp Inc. of Pasadena, Calif., said it would receive $306.5 million. In addition to 306,500 shares of preferred stock, taxpayers will get options to buy another 3.3 million shares of EastWest common stock for $15.15 per share. The bank‘s stock closed up 9.4 percent Friday at $15.64.

Other banks receiving bailout money include FPB Bancorp Inc. of Port St. Lucie, Fla., which will receive $5.8 million; Coastal Banking Company Inc. of Beaufort, S.C., which is getting $9.95 million; Sandy Spring Bancorp Inc. of Olney, Md., which is receiving $83 million; Eagle Bancorp Inc. of Bethesda, Md., which is getting $38.2 million; United Community Banks Inc. of Blairsville, Ga., which is receiving $180 million; Southern Community Financial Corp. of Winston-Salem, N.C., which is getting $42.8 million; Sterling Financial Corp. of Spokane, Wash., which is receiving $303 million; First Defiance Financial Corp. of Defiance, Ohio, which is getting $37 million; and Central Bancorp Inc. of Somerville, Mass., which is getting $10 million.

The Treasury Department expects to release a full list of the latest participating banks next week.

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Associated Press writer Christopher S. Rugaber contributed to this story from Washington.

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On the Net:

Emergency Economic Stabilization Act: http://www.ustreas.gov/initiatives/eesa/



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