We understand that several banks have been told that the bank needed to raise sufficient new private capital so that, following a TARP Capital infusion, the bank would:
- have total non-performing assets that are less than 100% of the resulting capital;
- have total classified assets that are less than 100% of the resulting capital; and
- be in compliance with the Commercial Real Estate guidance (total Commercial Real Estate loans of less than 300% of resulting capital, and total Acquisition, Development and Construction loans of less than 100% of the resulting capital).
We don’t think this is exclusive or automatic, but we do find it logical for some banks, and a good argument for others to use. For those banks that cannot satisfy the requirements of the Commercial Real Estate guidance, we believe that a tangible reduction schedule may suffice.
Yesterday’s New York Times article on whether banks are making loans (an interesting read if you haven’t already), also provides a graphic showing the Texas ratio of banks that received TARP Capital investments through December 31, 2008. While there are certainly flaws in the Texas ratio, we believe it is informative that the worst September 30th Texas ratio of any bank that received TARP Capital through December 31, 2008 was 77.4%.