NEW YORK — Uncle Sam could soon own a piece of Independent Bank Corp.
The Michigan lender disclosed in a filing Friday it has paved the way for the Treasury Department to convert into common shares the $72 million the government invested in the bank through the Troubled Asset Relief Program, or Tarp.
Technically, Independent said in the filing, the Treasury Department will receive preferred shares convertible into common stock in exchange for non-convertible preferred shares that the government received for its investment in Independent Bank in 2008.
The agreement is part of a broader plan to raise the capital levels of Independent Bank, located in Ionia, Mich. In order to convert the government funds to common shares, Independent Bank must also convince holders of at least $40 million in trust preferred shares to convert those investments to common shares.
In addition, the bank must also raise $100 million through a public stock offering.
Robert Shuster, the bank's chief financial officer, said preferred shareholders needed to convert their stakes into common shares in order to entice investors to pour new capital into the lender.
Common shareholders absorb losses before preferred shareholders, so in some cases new common equity investors demand preferred shareholders share in future losses by converting their stakes to common shares. Otherwise, new common shareholders in essence protect the stakes of preferred investors.
"The idea is to get as much of this to convert as possible so that when new money comes in it's all on equal footing," Shuster said.
Independent Bank has missed two dividend payments to the federal government required under the Treasury's Tarp investment. The payments were due in November and February.
Independent Bank is not the first bank receiving Tarp funds to miss dividend payments. Nearly 50 Tarp banks have missed both dividend payments, according to Keefe Bruyette & Woods.