Payback time
November 20, 2009 by Aaron Kremer
Union Bankshares, the parent company of Union Bank & Trust, just wired the U.S. Treasury $59 million it borrowed in December as part of the Troubled Asset Relief Program.
The TARP money was expensive in both interest and public scorn.
The bank was paying about $288,000 per month in interest on those funds, said William Beale, the president and CEO at Union Bankshares.
To make money on those funds, the bank would have had to lend out $200 million, Beale said, adding that the bank does not have enough quality projects or businesses to lend that much right now.
Plus, the bank could fund its growth without help from Uncle Sam. The bank replenished its capital by selling $62.5 million in stock in September.
Another reason the bank wanted to pay it back was to rid itself of the stigma attached, Beale said. And in the late fall of 2008, the bank couldn’t sell stock because investor appetite had evaporated.
“There had become quite a stigma attached with it once Congress changed the rules,” Beale said. “That’s when they started calling it a bailout.”
But the bank isn’t out of the woods completely. As part of the purchase, the government has warrants to buy 422,636 shares of UBSH’s common stock. That number was just cut in half to 211,318 warrants with the payment.
Those warrants provide the government (or another party, if they are sold) with the option to buy shares of stock at $21 a share. Because the stock currently trades at $11 a share, those warrants are underwater.
But they still have value, and Beale said that it could cost the bank about $600,000 to buy back the rest of the warrants, depending on how they are assessed. The bank has 15 days to make that purchase.
First Market Bank, which is in the process of merging with Union Bankshares, still has the $34 million it borrowed through TARP in February.
Aaron Kremer is the BizSense editor. Please send news tips to Editor@richmondbizsense.com.
Part of the problem with the stigma is that the Capital Purchase Program, which was brought about to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy, is often lumped under the “TARP” or trouble asset relief program umbrella. This gives the impression as Beale mentioned, that any bank involved in the Capital Purchase Program has a heavy volume of troubled assets or needs help, which is not always the case (and was not the case with Union Bankshares). Also keep in mind that the government encouraged healthy banks to participate in the program to show the country that it was working. After-the-fact, they changed the rules and started meddling with the banks that took the money to help them out. Once a bank figures out the Capital Purchase Plan is not all it’s cracked up to be, trying to get out becomes a long, laborious process.