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Monday, December 29, 2008

Banks Binging on Bailout

Posted By on Mon, Dec 29, 2008 at 4:20 PM

Until recently, the idea of the federal government bailing out financial markets and buying bank stocks was unthinkable. Times have changed. Stop at almost any bank in Orleans Parish, especially those with regional or national names, and the upper brass will attest to that.

The sub-prime mortgage bubble burst this fall, threatening credit markets and investment banks. In response, Congress approved a controversial $700 billion bailout package in October and the U.S. Treasury Department has kept busy since then, pledging all but $15 billion of the aid as of press time. The over-arching goal was to bolster the nation’s capital markets with just enough money to help small businesses with loans, lines of credit and other services through regional banks. Those original objectives, however, have fallen short of the mark.??While many financial institutions simply need help, some banks that received bailout funds are using the cash to expand operations. Others have actually made lending policies more stringent. For instance, Bank of America is using its $15 billion to double its holdings in the China Construction Bank Corp. It is China’s second largest lender, and Bank of America will soon hold a 20 percent stake, worth roughly $24 billion. Closer to home, Lafayette-based IberiaBank is slated for a $90 million share of the bailout, which company officials say they will use to acquire other cash-strapped banks. IberiaBank’s third-quarter earnings dropped 27 percent after a similar acquisition earlier this year of ANB Financial, an Arkansas bank that was shuttered by the Federal Deposit Insurance Corp. New Orleans-based regional banking company Whitney Holding Corp. likewise announced last week that it has sold $300 million in newly issued preferred stock to the U.S. Treasury as part of the federal financial-system bailout. The federal government also received a 10-year warrant to purchase about 2.6 million shares of common stock at $17.10 per share. The bank reported third-quarter earnings of $7 million, compared with $48.8 million in net income during the same period in 2007. Property values have plummeted in Florida, where Whitney holds a portfolio of real estate loans. Analysts view Whitney’s acceptance into the bailout program as a sign of government confidence in the bank. — Jeremy Alford

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