Bailout Report

In August 2007, Bear Stearns CEO Jimmy Cayne wrote to Bear investors.  Cayne’s mission that August was critically important, and he knew it.  In the wake of the shocking failure of two huge Bear Stearns hedge funds with heavy ties to the subprime mortgage market, the CEO needed to convey his confidence in the future of his company. Cayne cooly reassured investors that Bear’s conservative tradition, strong risk management culture, and plan to pare its mortgage backed securities portfolio would assure Bear Stearns a speedy and full recovery from the summer’s disastrous fund collapses.

In Cayne’s words, “You can count on us.”  Less than seven months later, Bear was purchased by JP Morgan for $10 per share.

A year later, Cayne sang a completely different tune in an interview with Fortune Magazine titled “The Rise and Fall of Jimmy Cayne.” The ex-Bear Stearns CEO revealed that the strength he projected in the summer of 2007 was in fact false strength. Fortune reported that Cayne “did not know how to deal with the devaluation of the firm’s mortgage-backed securities and other illiquid assets.  Nor did he know what to do… when two hedge funds that contained those same toxic assets collapsed and further poisoned the company’s balance sheet.”

The truth according to Jimmy Cayne himself is that Bear’s all-powerful dictator was paralyzed by indecision in the wake of Bear’s hedge fund troubles. Cayne had absolutely no idea how to cope with the company’s financial troubles.

In the CEO’s own words: “It was not knowing what to do. It’s not being able to make a definitive decision one way or the other, because I just couldn’t tell you what was going to happen.”

“I didn’t stop it. I didn’t reign in the leverage,” Cayne also admitted to Fortune.  Clearly, Mr. Cayne understood that Bear was overleveraged and blames himself for  doing  nothing about it.

Continue Reading →

The US Treasury Department provided $1,415,882,000 ($1.4 Billion) to banking institutions under the Troubled Asset Relief Program’s (TARP) Capital Infusion Program during the month of February in the form of preferred stock with warrants.  Banks receiving TARP funds in February, 2009 are:
Continue Reading →

Now that insurance companies figured out they can purchase the smallest of regulated bank holding companies to qualify for TARP funds, it’s time for everyone to grab an application to participate in TARP’s Capital Purchase Program.

(Of course, the original deadline was 5:00 PM yesterday.)

Capital Flows: The first $125 Billion round of US taxpayer capital will be transferred to the first nine banking holding companies this week.

List Grows: And fifteen regional banks have revealed themselves as recipients of $32.18 Billion from the second round of TARP’s Capital Purchase Program, with another $3.44 Billion imeediately pending:

 PNC Financial Services (PNC: 54.84 -0.72%)    $7.7 billion

 Capital One Financial (COF: 37.70 -1.67%)    $3.55 billion

 Regions Financial (RF: 5.45 +1.87%)          $3.5 billion

 SunTrust Banks (STI: 22.04 +0.82%)            $3.5 billion

 BB&T (BBT: 24.60 -0.32%)                      $3.1 billion

 KeyCorp (KEY: 5.73 -1.55%)                   $2.5 billion

 Comerica (CMA: 27.91 -0.57%)                 $2.25 billion

 State Street Corp (STT: 40.80 -2.13%)         $2.0 billion

 Northern Trust Corp (NTRS: 47.24 -0.90%)      $1.5 billion

 Huntington Bancshares (HBAN: 3.78 -1.31%)    $1.4 billion

 First Horizon National (FHN: 13.12 +2.90%)    $866 million

 City National Corp (CYN: 38.08 +0.53%)        $395 million

 Valley National Bancorp (VLY: 13.39 +0.22%)   $330 million

 UCBH Holdings (UCBH: 0.84 0.00%)            $298 million

 Washington Federal (WFSL: 18.90 -1.41%)       $200 million

 First Niagara Financial (FNFG: 13.25 0.00%)  $186 million

 West Bancorp (WTBA: 4.97 +2.05%) seeking shareholder approval to receive between $12 and $26 million.

Fifth Third Bancorp (FITB: 9.97 -0.80%) expecting approval for $3.4 billion.

As a result, this is the first day since the crisis began that the stocks of the regional banks [(KBE: 21.66 -0.23%), (RKH: 77.39 -0.45%), (IAT: 20.48 +0.05%)] are performing better than those of the money center banks [(IYF: 51.85 -0.54%)] as seen reflected in the comparing several financial sector ETFs:

Regional Banks Outperforming Money Centers

PNC Finacial Services Group and Valley National Bancorp became the tenth and eleventh banks to sell preferred equity to the US Treasury, the first to volunteer after the original nine major banks were conscripted into the capital infusion program by Secretary Paulson earlier this month.

Pennsylvania based PNC Financial will be using its $7.7 Billion of TARP funds to help finance the acquisition of Ohio-based National City.  The all-stock transaction values National City at $5.2 billion, 19% less than National City’s closing price the day before the announcement ($2.23 a share on an exchange rate of 0.0392 PNC shares for each National City share).  The combined regional bank will be the fifth largest bank by deposits with over $180 Billion.

New Jersey based Valley National took a more modest $330 Million from Treasury which it intends to use for general corporate purposes and to possibly acquire other banks. Valley is a relatively small, relatively healthy regional bank with $14.3 Billion in assets and total risk-based capital, Tier I capital, and leverage capital were 10.12 percent, 8.41 percent, and 6.83 percent, respectively (as of the third quarter).

Eighteen to twenty other banks, including Capital One, SunTrust Bank, Regions Bancorp, and KeyBank, have also reportedly negotiated sales of preferred equity under the TARP Capital Purhase Program.  They are each expected to make their own announcements over the next week.