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Requesting Additional FDIC Debt Guarantee

We’ve received some inquiries regarding the circumstances under which a bank with no or limited senior unsecured debt outstanding at September 30, 2008 might be eligible to issue guaranteed senior unsecured debt under the FDIC’s Temporary Liquidity Guarantee program through June 30, 2009.  Based on the FDIC’s interim rule relating to the program and informal discussions with FDIC representatives, we believe that this will be possible, but that prior FDIC approval will be necessary in order for the guarantee to apply.

At this time, there is no application form or specific procedural guidance, but we have been told that you should contact your primary FDIC regulatory contact to request coverage if you plan to issue senior unsecured debt, would like for it to be guaranteed, but did not have any outstanding at September 30, 2008 or did not have sufficient debt outstanding to guarantee the full amount of the new proposed issuance.  The FDIC will review each request individually and may want you to show how guaranteeing your new debt will be consistent with the FDIC’s public policy of supporting the strength and liquidity of the banking system through next June.

We believe this guidance applies both to banks with a temporary zero balance at September 30, 2008 (i.e., those with a Fed Funds purchased position that day but with sold positions on other days) and to those with a zero balance that they have sustained for a long period of time.  We’ll publish more specific guidance as it becomes available.

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FDIC TARP Capital Application Supplemental Ratios

We understand that the FDIC is requesting that TARP Capital applicants complete (either with their application or supplementally thereafter), this Capital Ratios spreadsheet.  Regardless of whether you elect to submit the spreadsheet with your initial application, we believe completing the spreadsheet is a good exercise to understand what the federal regulators, or at least the FDIC, intends to review.

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Seeking Confidential Treatment for Portions of the TARP Application

What Should be Confidential?

Although the TARP Capital application form itself is simple and does not generally request information that is not otherwise publicly available or that is sensitive in nature, there are some aspects that you should consider for confidential treatment.  A few examples are listed below.  The first item listed (M&A and capital plan) is requested in the application, and the regulators may request the others supplementally.

  • Description of anticipated mergers, acquisitions or other capital plans
  • Projections, if requested by the regulators
  • Contemplated use of proceeds
  • Discussions of CAMELS ratings or other exam-related information
  • Data that raises customer privacy concerns

How Do I Keep Information Confidential?

The TARP Capital program application form contains the following instructions:

Any applicant desiring confidential treatment of specific portions of the application must submit a request in writing with the application.  The request must discuss the justification for the requested treatment.  The applicant’s reasons for requesting confidentiality should specifically demonstrate the harm (for example, loss of competitive position, invasion of privacy) that would result from public release of information (5 U.S.C. 552). Information for which confidential treatment is requested should be:  (1)  specifically identified in the public portion of the application (by reference to the confidential section); (2) separately bound; and (3) labeled “Confidential.”  The applicant should follow the same procedure when requesting confidential treatment for the subsequent filing of supplemental information to the application.

The applicant should contact the appropriate regulatory agency for specific instructions regarding requests for confidential treatment.  The appropriate regulatory agency will determine whether the information will be treated as confidential and will advise the applicant of any decision to make available to the public information labeled as ‘Confidential.’

What Should My Request Include?

When requesting confidential treatment, a separate letter dealing with that issue specifically should be attached to the application.  The letter should:

  • reference your bank and its application;
  • state that you are requesting confidential treatment of the information identified in the request under the Freedom of Information Act (5 U.S.C. 552);
  • identify the nature (but not specific content) of the information for which confidential treatment is requested;
  • state why confidential treatment of the identified information is necessary (see below for typical grounds); and
  • repeat the identification and explanation for other categories of confidential information covered in the request.

How Do I Support My Request?

While the specific issues will vary depending on each bank’s situation, the typical grounds for confidential treatment involve competitive harm, adverse legal or regulatory consequences, or violations of privacy that could be suffered if the information were disclosed.  Examples include:

Acquisition discussions: Disclosure would result in competitive harm because a fundamental competitive aspect of the bank’s strategic plan would be made public.  Third parties could interfere in the negotiations, and premature disclosure could adversely affect both parties’ ability to consummate the transaction and/or the market for their stock.  Disclosure will in any event likely be prohibited under a confidentiality agreement or terms of a letter of intent or definitive agreement.

Capital transactions: Disclosure would result in competitive harm because competitors would be in a position to evaluate the bank’s current and prospective capital position and future performance prospects.  Competitive harm could also result from public disclosure of privately negotiated transaction terms with identified investors.  Additionally, a prior public announcement of a private placement could trigger “general solicitation” concerns under federal securities laws.

Projections: Disclosure would result in competitive harm because this information reflects the bank’s own internal evaluation of its resources, future prospects and operating and growth strategies.

Use of Proceeds: Disclosure would result in competitive harm because the bank’s intended use of capital provides valuable insight into its future plans regarding acquisitions, branching, product and service expansion, and other elements of its strategic plan.

CAMELS and Exam Information: This information is required to be kept confidential under banking regulations.

Customer or Account Data: Disclosure would violate existing statutory and regulatory privacy protections and would also damage the bank’s existing and potential customer relationships.

These are just general illustrations—the key is to think about the harm that disclosure could do and describe it briefly.

Is this Really Necessary?

Applications submitted in draft form are not available publicly, so the confidential treatment request is not as critical at that stage.  For final applications, it’s possible that all information will be treated as confidential under the regulators’ supervisory powers (as opposed to the applications process), but until this is confirmed, it would be prudent to request confidential treatment.

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TARP Capital Recipients

TARP Capital Recipients

October 29, 2008

Authored by: Robert Klingler

The Wall Street Journal has compiled a database showing banks that annouced Treasury approval for TARP Capital, including the amount of capital that Treasury has committed.  As of the morning of October 29, 2008, the smallest institution to be included is First Niagra Financial Group, which had approximately $9.0 billion in assets as of September 30, 2008.

In today’s Research and Trading Thoughts, FIG Partners includes a TARP Scorecard for TARP Participants, that analyzes the warrant pricing and concludes that investor complaints about dilution should be curtailed.  The FIG Partners analysis includes an announcement by Saigon National Bank that they have been approved by the Treasury Department.  Saigon National Bank is a de novo institution located in Westminster, California with $43.2 million in assets at June 30, 2008, and is traded on the Over-The-Counter market.  We are seeking more information from management, and will update as we know more.

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Lyn Schroeder Featured in Deal Watch

Lyn Schroeder’s legal advice to a South Carolina bank seeking to go private was featured yesterday in the Fulton County Daily Report’s Deal Watch blog.

We believe that Powell Goldstein has assisted more financial institutions deregister from the SEC than any other law firm in the last four years.  We have prepared a comprehensive presentation on how and why community banks are electing to go or stay private.

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Executive Compensation Rules for TARP Capital

Under the Treasury Rules, new executive compensation rules will govern all financial institutions that participate in the TARP Capital program.  The provisions generally apply as long as the Treasury holds an equity or debt position, including warrants and the common stock underlying the warrants, in the institution.  To be eligible to participate in TARP Capital, financial institutions must meet the following standards:

  • certify that incentive compensation for senior executive officers (“SEO”) does not encourage unnecessary and excessive risks that would threaten the value of the institution;
  • require that SEO bonus and incentive compensation be subject to “clawback” if the payment was based on materially inaccurate financial statements or performance metrics;
  • prohibit any golden parachute payment to an SEO; and
  • agree to deduct no more than $500,000 for an SEO’s compensation.

Powell Goldstein’s preliminary analysis of these standards are included in our Client Alert, titled “Treasury Issues Executive Compensation Rules for the TARP Capital Purchase Program.”

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Commentary: Does Accepting TARP Capital Mean Additional Regulation?

We have heard a number of bankers state that they are concerned with accepting the TARP Capital, fearing potential future regulation imposed on those that accept government money.  While each bank’s situation is unique, we generally consider this concern to be overstated for the following reasons:

  1. Once the TARP Capital is in place and the preferred stock and warrants are issued, the terms of those instruments are defined by contract.  The government should not be able to modify the terms to give itself a better deal.  For example, the government cannot require that the institution pay the 9% dividend before the expiration of five years.
  2. We believe that if the government decides to impose additional regulatory restrictions (which in this economic environment seems likely), it is more likely to do so with regard to the whole industry rather than distinguish between banks that accepted the TARP Capital and those that did not.  From a policy perspective, Congress and the regulators may view “the whole industry” as having been helped and therefore that “the whole industry” should bear the burden of any additional regulations.
  3. The government already has broad powers to regulate financial institutions; it seems unlikely that the government would use its relatively weak power as a preferred shareholder to impose change when it has stronger regulatory powers to impose change.
  4. The government may impose one or more of the restrictions that are currently associated with the TARP Capital program on all companies – for example, it is possible that the executive compensation changes may be expanded to all companies, whether or not they have accepted (or were even eligible for) TARP Capital.

That’s our belief.  We’d love to hear yours in the comments.

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TARP Capital Application Process

TARP Capital Application Process

October 28, 2008

Authored by: Robert Klingler

We have been speaking with all of the regional Southeastern federal banking regulators, and we have received significant input on the TARP Capital Application Process.   (Institutions in other areas of the country should confirm the advice with their corresponding federal regulators; we have no reason to believe the advice will be different, but have only talked with the regulators located in the Southeast.)

Submission of Application

  • Bank holding companies should submit their application to the Federal Reserve, with a copy to the primary federal regulator for their lead (i.e. largest) subsidiary bank.  The Federal Reserve intends to defer decisions on any shell holding companies to the primary federal regulator of the lead subsidiary bank.
  • The Federal Reserve (at least Atlanta) requests that applications be emailed to them, with a signed hard copy to follow.  Processing will begin upon receipt of the emailed application.
  • Applications to the Atlanta Federal Reserve should be emailed to Ms. Nicky Hennings ( with a copy to Ms. Kate Gaboardi (  The hard copy should be sent in accordance with standard Atlanta Federal Reserve rules.
  • Applications to the FDIC should also be emailed, based on the state of the institution’s primary office:
  • State banks should also carbon copy their state banking Commissioner.   The Commissioners are taking an active and helpful role in supporting the Capital Process and Regional FDIC and Fed (for member banks) have indicated an intent to communicate with State Commissioners before making a recommendation to the Treasury.
  • Applications for all national banks should be emailed to, with questions directed to Fred Finke at
  • Applications for federal thrifts and their holding companies must be submitted to OTS through secure e-mail.  The Atlanta contact person is Yashica Pope at, with copies to the Review Examiner or AD for the institution.

Supplemental Information with Application

  • The Atlanta office of the FDIC advised that they are following up with each applicant when additional information (beyond the application) is necessary.  Whether additional information is necessary, and the contents of such information, may vary by applicant.  The FDIC advises banks to file the application without supplemental information, and the FDIC will subsequently contact the institution regarding what additional information is needed.  Update 10/29/08: See the supplemental spreadsheet requested by the FDIC.
  • If you have supplemental information ready to submit with your application, we do not believe there is any harm in doing so, but it is not required as part of the application.  Should the supplemental information be lengthy, it may be better to state that such information is available upon request.
  • The regulators are divided as to whether the application should be submitted in draft and/or with a confidential treatment request, and whether the application is subject to the Freedom of Information Act.
  • Until concrete guidance is given, and potentially even then, we recommend that applications be submitted in draft form (especially for private companies that do not anticipate participating under the terms of the public term sheet) and with a confidential treatment request for any confidential information.  See more information about requesting confidential treatment.
  • We do recommend that counsel review the application before submission to include suggested improvements that may be available.

CAMELS Ratings and TARP Capital

  • The federal regulators unanimously told us that institutions should not forego an application regardless of their CAMELS ratings.
  • The Atlanta FDIC gave us the following framework that it would use for analyzing TARP applications:
    • CAMELS rating 1 or 2 – Submit the application saying that you hope to make prudent loans and are available to consider problem banks, if appropriate.
    • CAMELS rating 3 – Justify the long-term viability of the institution.  Viability means the ability to earn money operationally (pre-tax and pre-provision, a.k.a. “Pre-Pre” earnings) and be able to survive.
    • CAMELS rating 4 – Justify the long-term viability of the institution, with viability including new capital and a new business plan.
    • CAMELS rating 5 – Justify the long-term viability of the institution, which includes all of the above plus new management.
  • The FDIC stated that this breakdown was designed to be an example of the kind of analysis that the FDIC will perform.
  • We believe that 3’s will generally be eligible and treated closer to 1’s and 2’s, while 4’s and 5’s may also be eligible given the right circumstances.
  • In an acquisition, both the acquirer and acquiree can receive TARP Capital up to 3% of their respective risk weighted assets.
  • The regulators all said that CRE concentrations are not a bar to receiving TARP Capital, assuming the institution has long-term viability, as discussed above.  They specifically mentioned an institution which had 600% of capital in CRE, which had reduced its CRE concentration to 400% and had plans to reduce CRE to 200% over time, and suggested that the institution would be eligible for TARP Capital.

Private Company Term Sheet

  • We have heard rumors of drafts of private company term sheets floating around, but can confirm that nothing has been finalized.  The Conference of State Bank Supervisors is meeting daily with the Treasury and told us today that they had not seen a term sheet.
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FIG Partners' Analysis of TARP Capital

On October 24, 2008, FIG Partners published an alert analyzing the opportunities for community banks under the TARP Capital plan.

We view the TARP Capital Purchase Program as an excellent opportunity for the banking industry to secure some much needed capital at relatively inexpensive and mildly dilutive terms. The opportunity is particularly attractive at a time when outside capital is extremely difficult to find. As such, we at FIG would like to urge any and all banks and thrifts to seriously consider participating in the program. Some of the immediate benefits of the initiative are:

  • Improves capitalization ratios
  • Provides capital for future growth, organic and M&A
  • Solidifies the institution’s balance sheet and puts it in a position to take advantage of failed institutions/assisted transactions
  • Implies that the institution received the “blessing” of Treasury/regulators – investors are likely to perceive the companies taking advantage of the TARP Capital Program as survivors

Again, we believe that all banks and thrifts should utilize the TARP Capital Purchase program, and since the November 14th deadline is fast approaching, we urge you to explore the program and familiarize yourself with all the details sooner rather than later.

Read FIG Partners’ full alert on the TARP Capital program.  To see all Investment Banker reports on this site, please see all posts tagged Investment Banker.

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Where Can I Find the Investment Agreements?

As you may know, the TARP Capital Application (Word Version) asks whether the “Institution Has Reviewed The Investment Agreements And Related Documentation On Treasury’s Website (Yes/No).”

The Investment Agreements and Related Documents have not yet been made available by the Treasury Department.  When they are made available, we presume they will be made available on the Treasury’s Emergency Economic Stabilization Act page.

Until they are made available, we recommend that applying institutions indicate that they have not read the materials (either with or without a note that the materials were not available at the time of filing).  Due to the FDIC’s guidance to note any structural conditions to acceptance of the Treasury’s public term sheet, we also recommend that applicants refer to our earlier articles describing potential issues for non-public financial institutions.

Update 10/29/08: We understand that the FDIC is now informing applicants that the investment agreement will not be provided to them until they are approved for participation in the TARP Capital program.

Update 10/31/08: The Investment Agreements for publicly traded companies are now available.  Private and Subchapter S institutions may wish to review generally, but the Treasury is working on revised Investment Agreements for non-publicly traded companies.

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