United States: Update On The TARP Capital Purchase Program: Action Due By November 14, 2008

Last Updated: October 31 2008
Article by Ralph F. MacDonald III (Chip), Brett P. Barragate, Christopher M. Kelly and Kevyn D. Orr
Most Read Contributor in United States, September 2019

The Treasury Department's TARP Capital Purchase Program ("CPP") provides for the Treasury's purchase of up to $250 billion of senior preferred shares in U.S. depository institutions and their U.S. holding companies. Of this amount, $125 billion was committed initially to nine large institutions. On October 24 and 25, 2008, it became apparent that further purchase commitments were going to be made by the Treasury to 20 to 30 regional bank holding companies. The names and amounts committed to these institutions have not been released, and it appears that each institution will separately announce its participation in the CPP. At the end of that week, additional indications began to surface that insurance companies were seeking consideration. The Financial Services Roundtable also asked the Treasury Department to expand the CPP to include securities broker-dealers, insurance companies, automakers, and foreign-controlled firms.

What remains unclear is the effect of these developments on the CPP, the amount of money committed to it, and the availability of funds for other institutions, as well as how nonpublicly traded institutions can participate in the CPP, although the Treasury continues to indicate that private institutions will be able to participate. The following are clear, however:

  • The deadline to apply is November 14, 2008.
  • All federal bank regulators encourage eligible institutions to participate.
  • The Treasury intends to close all CPP purchases by December 31, 2008.
  • Applications must be made at the highest-tier holding company, with copies to the federal regulator of the holding company's largest depository institution subsidiary.

Persons desiring to participate in the CPP should conclude their consideration and apply quickly.

Actions

The Treasury and the federal bank regulators have published an interagency application and related guidelines for the CPP. A copy of the application is attached to this Commentary.

The following actions are suggested:

  • Consider the amount of capital you may need in the form of CPP preferred stock.
  • Discuss participation in the CPP and the amount of capital sought with your primary federal and state bank regulators as soon as possible. All institutions, particularly smaller and troubled institutions, will need to have their regulators advocate their interests in order to gain visibility and enhance their chances of utilizing the CPP. The Treasury has stated that it will look to a troubled institution's primary regulator for recommendations regarding any applications submitted. While the Treasury will disclose the institutions accepted in the CPP, it will not disclose those institutions that either withdraw their application or are rejected for participation in the CPP.
  • Be prepared to discuss and offer your regulators solutions to current problems, such as concentrations of assets or risks, problem loan levels, "structural issues" (i.e., private company, lack of authorized preferred and common stock, etc.), and whether you expect to raise private capital in conjunction with the CPP. It is now clear that some applications will be rejected and that applicants need to be proactive to gain approval to participate. Practical and realistic alternatives to the CPP should also be considered.
  • Plans to add capital from other sources should be disclosed.
  • Consider whether your certificate of incorporation authorizes "blank" preferred stock issuable in series upon only board of directors' action.
  • Consider whether you have sufficient amounts of common stock authorized and available for reservation for exercise of any warrants issuable to the Treasury under the CPP.
  • Consider the use of depository preferred stock to preserve authorized but unissued preferred stock, to avoid a shareholders' meeting, and to provide future flexibility.
  • Consider whether a shareholders' meeting will be needed to amend the certificate of incorporation to authorize preferred stock or to authorize or issue additional shares of , and, if needed, prepare the proxy material for such meeting now. The Treasury's FAQs indicate that applicants will only have 30 days after preliminary Treasury approval to submit final documents and fulfill any outstanding requirements of the CPP.
  • Consider whether any amendments or waivers are needed from existing investors to permit the issuance to the Treasury of preferred stock, warrants, or the common stock issuable upon exercise of the warrants, and whether any existing instruments contain anti-dilution or price protection covenants that may be triggered by participation in the CPP.
  • Private institutions, including those that have elected to be taxed as "Sub S" corporations, should apply for the CPP, even though their means of participation remain to be defined.
  • Absent action by the Treasury or the IRS, Sub S companies may have to decide whether the CPP capital is more important than maintaining their Sub S election.

Conclusions

The TARP CPP offers capital with reasonable terms, which should build investor, depositor, customer, and public confidence in those institutions that participate. The FDIC has stated that participation in the CPP "can bolster financial strength, or potentially support acquisitions, both of which allow for prudent lending that may be currently constrained by capital levels." Whether or not capital is currently needed, capital from the CPP offers:

  • Opportunities to grow profitably in disrupted markets.
  • Opportunities to meet increasingly stringent credit requirements by lenders and counterparties.
  • Insurance against: further deterioration in economic and credit conditions; changes in accounting rules, such as FASB 140; and increases in minimum capital and liquidity requirements imposed by the bank regulators or legislative action.
  • Reductions in risk that may attract new investors.
  • Individually, and in conjunction with the FDIC's Temporary Liquidity Guarantee Program, additional liquidity.

Strong consideration should be given to participating promptly in the CPP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions