Just Say No To TARP

On Feb 4, I wrote an article titled Top five US banks to invest in now which listed the top five regional US banks based on the Bank Director magazine. In that list, Glacier Bank (GBCI) was the top bank. Glacier Bank rejected to get help from the Treasury’s Troubled Assets Relief Program (TARP). Instead the bank went to private investors and did a successful common offering raising $98M.Due to strong investor demand the bank had increase the offering from 4 Million to 5 Million shares.

You may be wondering what does this have to this article. Well let me explain. Many small banks have declined to participate in the TARP program simply because they balance sheets are strong and they did not want to adhere to the conditions that came with the capital offered by TARP. For example, Citibank (C) , Fifth Third Bank (FITB) , etc. who accepted the government capital have been forced to suspend dividends drastically and now they offer a 1 cent dividend.

The recent edition of BusinessWeek has a piece titled “Small Banks say ‘No Thanks’ “. Basically the author states that the too many conditions of the TARP program does not attract many banks that are doing just fine. In fact the author notes that the banks that are not accepting capital from the Feds have actually increased lending. This is very interesting since the fundamental reasoning behind the Feds helping the banks was to ease the credit markets and have lending flow normally again. This has not happened especially with the so-called “SuperBanks”. Many of these institutions that took TARP capital have tightened lending and are sitting on enormous amount of funds in reserves.

The following are five banks that have not accepted federal aid and have increased lending in Q3 2008 Vs.Q3 2007:

1. New York Community Bankcorp Inc(NYB)
Lending increased by: 13.2%
Current Yield: 7.89%

2. Chemical Financial Corp. (CHFC)
Lending increased by: 4.1%
Current Yield: 4.85%

3. Dime Community Bancshares(DCOM)
Lending increased by: 12.6%
Current Yield: 5.41%

4. Smithtown Bancorp Inc (SMTB)
Lending increased by: 57.4%
Current Yield: 1.12%

5. SY Bancorp Inc (SYBTP)
Lending increased by: 13.7%
No regular dividends paid

We shall revisit these banks at the end of the year and see how they fared compared to other banks.

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