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TARP selling shares of some banks at loss

– At 9 a.m. on Nov. 30, the Treasury Department began auctioning off its shares in seven community banks scattered across the country. Each of these institutions had taken money from the government in 2009 during the financial crisis.

By the time the bidding closed at 6 p.m. last Monday, the Treasury had collected about $62 million.

Not a bad outcome. That is, until you consider the government’s original investment: $75 million.

It wasn’t the first time the government walked away with a loss. In 10 similar auctions conducted to date, Treasury has sold off its investments in 84 financial firms, accepting losses of roughly $241 million.

As memory of the financial crisis fades, the Treasury has been working to rid itself of the albatross of the TARP government bailout, officially called the Troubled Asset Relief Program.

Thanks to repayments by the biggest banks in the country, which have largely returned their rescue funds with interest and dividends to spare, the program has been hailed in some quarters for saving the financial system.

But as the agency works to push much smaller banks out from under the government’s thumb, the Treasury has been far more tolerant of losses, say critics. Given the improving economy, the agency could make hundreds of millions of dollars by holding onto the shares in these bank a little longer, they say.

That’s small change in Washington, home to the trillion-dollar budget, but not insignificant as politicians wrangle over belt-tightening measures. After all, some critics note, doesn’t the Internal Revenue Service, an arm of the Treasury, doggedly pursue individuals for far less?

“Treasury has shifted its emphasis and is no longer focused on promoting financial stability,” said Christy Romero, special inspector general for the TARP. “Instead, Treasury wants to declare success and move on.”

Treasury officials say the bids the department has received reflect what the market is willing to bear at this point.

Besides, they say, the ultimate goal is to wind down TARP in an efficient way.

Moreover, the government may have sold shares in these community banks at a loss, but these firms also paid $307 million in dividends to Treasury coffers, aside from the money recouped from the auctions. Overall, Treasury has turned a profit from its small bank investment.

“We want a competitive, transparent process, and that’s exactly what we’ve had with the auctions,” Treasury Assistant Secretary Timothy Massad said.

Some small banks have taken advantage of the auctions and purchased their own shares at a discount.

West Virginia’s Premier Financial Bancorp spent $9.2 million in July to buy back about half of its 22,000 shares at a discount of almost 10 percent. A month earlier, First Capital Bank of Glen Allen, Va., put up nearly $5 million to snap up half of its 11,000 shares at an 8 percent discount.

In its most recent quarterly report to Congress, the Office of the Special Inspector General for the Troubled Asset Relief Program raised concerns that the continued sell-off could discourage the remaining banks from settling up with the government at the full value of their shares.

“Taxpayers are being shortchanged on revenue they could be earning,” said Joshua Siegel, managing principle of StoneCastle Partners, a firm that invests in community banks. “If we could increase the average price of these sales from 80 to 90 cents on the dollar, and let’s say there’s five billion left, that’s $500 million more. How many teachers could we employ?”

Siegel anticipates it will only get harder for Treasury to bring its shares to auction as many of the remaining banks are small and private, meaning they don’t have to disclose their problems in public statements.

“It’s not a natural investment for a lot of buyers,” he said. “There are very few people who focus on community banks and understand the credit and the market.”