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Saturday, November 21, 
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Small banks start paying back TARP money for better terms

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paying back money.jpgSometimes it pays to be a little guy. While the nine largest U.S. banks are the most well-known recipients of the government's largess, there are a good number of smaller financial institutions that received capital from the first tranche of the Treasury's $700 billion Troubled Asset Relief Plan. And as the financial storm set off by Lehman Brothers Holdings Inc. eases, those same smaller banks are quickly raising private capital in order to reduce government ownership of their businesses.

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According to the Financial Times:

A handful of small banks have raised money in recent weeks from existing shareholders and private equity firms, and through public offerings. The range of schemes is indicative of the types of strategies the rest of the banking industry could pursue in the coming year.
Why move so quickly? Well, under the terms of the TARP program, if a bank gets up 25% of the money injected by the Treasury within the first year, the institution qualifies to have the government's outstanding warrants on the bank reduced by 50%.

However, the only bank to pull it off thus far has been IberiaBank Corp., but it certainly won't be the last. Other banks such as National Penn Bancshares Inc. and Flagstar Bancorp are now attempting it. Flagstar signed a deal with private equity firm MatlinPatterson, which would make a $250 million investment (for complete terms, Pipeline subscribers can see them here). And National Penn is encouraging its shareholders to help it raise the capital through a reinvestment scheme that allows them to buy new shares at a 10% discount. - George White

See story from the Financial Times




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