The Treasury Department is set to sell stakes in seven banks at an expected $2 million aggregate discount.
The Treasury said Thursday that it should gross about $23.8 million from auctioning stakes in seven participants in the Troubled Asset Relief Program. The expected proceeds would represent a 9% discount from the nearly $26 million that the government originally invested in those banks.
It would also be the first auction to take place since American Banker reported that a frequent auction bidder, Basswood Capital Management, was stiffed on a dividend payment by a Tarp bank only after it successfully bid in an October auction. CenterBank in Milford, Ohio, made all 13 quarterly dividend payments to the Treasury and appeared healthy, so the investor expected to receive the same treatment.
Some industry observers were concerned about that the incident could weaken pricing for future auctions. "The problem is going to be that investors will become wary of bidding on noncumulative paper if they're worried that banks may try to game the system," Matthew Lindenbaum, a Basswood principal, said in a recent interview.
The Treasury's prior auctions have not yet generated a profit in total, and some performed worse than projection for the upcoming auction. Past auctions of 84 banks produced about $1.5 billion in proceeds, or $221 million less than the original investment. However, the Treasury has netted a profit when taking into account all of its Tarp divestiture programs. Nearly $268 billion has been recovered from the $245 billion first invested.
"We're continuing to see strong demand in these auctions, which helps ensure that the process maximizes value to the taxpayer while also helping community banks replace temporary government support with private capital," Timothy G. Massad, the agency's assistant secretary for Financial Stability, said in a press release. Tarp's "bank programs helped stabilize the economy and turned a profit for taxpayers, and these auctions are one part of our broader strategy to continue winding them down."
The most recent auctions are expected to close by Dec. 20. The banks involved are Bank Financial Services in Eden Prairie, Minn.; Bank of Southern California in San Diego; Century Financial Services in Santa Fe, N.M.; Community Investors Bancorp in Bucyrus, Ohio; First Alliance Bancshares in Cordova, Tenn.; First Independence in Detroit; and Hyperion Bank in Philadelphia.
The auctions commenced on Tuesday.
