Jeremy Alford

Lafayette banks taking part in bailout

by Jeremy Alford

Under normal circumstances, the concept of the federal government bailing out financial markets and purchasing bank stock of any type like a regular investor would be unthinkable. But these aren’t normal circumstances. Stop at practically any bank in Lafayette Parish, and the upper brass will attest to as much.

The subprime mortgage industry reached a crisis stage this fall, threatening credit markets and investment banks. In response, Congress approved a controversial $700 billion bailout package in October and the U.S. Treasury Department has kept busy since then, pledging all but $15 billion of the aid as of this week. The overarching goal was to bolster the nation’s capital markets with just enough money to help small businesses with loans, lines of credit and other services through regional banks. Those original objectives, however, are arguably falling off mark.

While many financial institutions simply need help, some of the banks that received direct assistance through the bailout package are using the cash to expand operations. Others have actually made lending policies more stringent. For instance, Bank of America is using its $15 billion bailout to double its holdings in the China Construction Bank Corp. It’s China’s second largest lender and Bank of America will soon hold a 20 percent stake, worthy roughly $24 billion. Closer to home, the Lafayette-based IberiaBank is slated for a $90 million share of the bailout, which company officials say they will use to acquire other cash-strapped banks. IberiaBank’s third-quarter earnings dropped 27 percent due to a similar acquisition it made earlier this year of ANB Financial, an Arkansas bank that was shuttered by the Federal Deposit Insurance Corp.

Although he originally voted in favor of the bailout, U.S. Rep. Charlie Melancon, D-Napoleonville, who represents lower Acadiana, has said repeatedly in recent weeks that he has been "very disappointed" with the way the banking industry has used the bailout cash thus far. Robin Winchell, his press secretary, said the congressman also finds fault with the White House. "(Melancon) is also dissatisfied with the lack of instruction and direction that has come from the administration on how the money should be applied," Winchell adds.

MidSouth Bank, also based in Lafayette, announced last week that it has received preliminary approval to participate in the U.S. Treasury Department's Capital Purchase Program, a component of the bailout package. If it elects to participate, the bank may issue up to $20 million in senior preferred stock, with related warrants to purchase up to $3 million in common stock, to the treasury. In a press release, bank CEO Rusty Cloutier says MidSouth is still determining whether or not it will participate. There was also no indication as to how the money might be used. "We will carefully consider all factors in making a decision to participate, including talking with customers, public officials, senior management and of course our board of directors," Cloutier says. "The additional capital will certainly enhance our capacity to support the revitalization of the areas we serve that have been struck by four destructive hurricanes in the past three years."

There are other examples, though, of banks that do not want the help of the U.S. government. For instance, the Biloxi-based Peoples Bank actually issued a press release declining to participate in the fed’s $700 billion rescue fund for financial institutions. In his statement, CEO Chevis C. Swetman notes that the Treasury Department was only issuing assistance to banks with strong financials. With a capital ratio of 12.76 percent as of the third quarter, 50 percent higher than what’s needed to take part in the bailout, Peoples Bank is among the few exceptions that want to continue doing businesses as if the historic bailout never happened. "We are enduring the worst financial crisis in my entire career as a banker, but our bank has the capital and the strength to continue doing business on the same sound banking terms that we have followed for more than 110 years," Swetman says. "We are open for business and actively lending to qualified customers.