Paul Gores
The Journal Sentinel
March 6, 2009
|
Johnson Bank has turned down a $100 million capital infusion from the U.S. Treasury, saying it doesn't need the money, and there are too many strings attached to taking it.
The Racine-based bank joins an increasing number of financial institutions with misgivings about letting the federal government buy a stake in them through the Troubled Asset Relief Program.
Top executives of Johnson Bank, which with $5.7 billion in assets is the third-biggest bank based in Wisconsin, said Thursday that they weighed many factors - among them the overall costs of the capital and the public perception about receiving TARP money - before deciding against it.
Russell C. Weyers, chief operating officer of Johnson Financial Group, said privately owned Johnson Bank is run with long-term financial goals and growth in mind, and taking TARP money might force it to alter how it operates.
"We're just not interested in allowing it to change the way we do business," Weyers said. "And that's why we're walking away from it. We don't need the money, we're well-capitalized, and we can continue to operate our business the way we're operating today without it."
Although the Treasury has said TARP capital is going to healthy banks as part of its effort to strengthen and stabilize the financial system, some unhealthy banks have received the funds, too. Bankers and bank analysts say that has led to confusion.
"The public perception generally is that this is a bailout. And for some institutions, perhaps it is," said Richard A. Hansen, president and chief executive of Johnson Financial Group. "For us, it wouldn't be a bailout. It would be expensive capital that we feel we don't need. But the perception by our communities as receiving a bailout is not an acceptable thing that we want to do to our brand."
In addition to the public perception concern, some bankers are unhappy about limits imposed on executive compensation and the sway TARP gives the government and politicians over banks that accept the money.
This week, two Minnesota-based banks with a strong Wisconsin presence indicated they are eager to redeem the shares of preferred stock the Treasury bought from them last fall and exit TARP.
In an announcement Wednesday by U.S. Bank that it was cutting its quarterly dividend, chief executive Richard K. Davis said part of the reason for trimming the dividend from 42.5 cents to 5 cents per share was so the bank could preserve capital and help it leave TARP "as soon as prudently possible."
On Monday William A.Cooper, chief executive of TCF Financial Corp., the parent of TCF Bank, said the company has asked to pay back $361 million to redeem TARP preferred stock and get out of the program. He said participation has created "a competitive disadvantage" because rule changes by the government have blurred the initial premise of the program: To distribute TARP money only to healthy banks, which in turn would use it to expand lending in their markets to qualified borrowers. Cooper said, in part, that "public perception views those banks that took TARP money as having done so out of weakness."
Jon C. Bruss, chief executive of Fortress Partners Capital Management in Hartland, said there are likely to be more banks rejecting Treasury capital because TARP gives politicians influence over how banks operate and sets them up for criticism by congressmen.
"My guess is that increasingly we're going to find that banks don't need to put up with that kind of stuff," Bruss said.
Banks that take the money must pay a 5% annual dividend to the Treasury, but there are other costs as well, Weyers said.
"There is more and more concern over what the true cost of it is," Weyers said. "There is a financial cost, and there is a public relations cost and there's a political cost. And I think most bankers are trying to weigh that out."
Weyers said potential limits on executive compensation weren't among factors considered by Johnson Bank as it debated whether to take the money. But he said a possible disruption of its culture and role in the community was. He said taking TARP funds might subject the bank to criticism if it then continued corporate sponsorships in its markets.
"We're not real interested in having people tell us you can't support the Racine Zoo or the Skylight Opera in Milwaukee or whoever we happen to support," Weyers said.
|
