WASHINGTON — Though the Treasury Department quickly approved scores of institutions' requests for capital injections, many others seeking a share of the government funds have been waiting weeks for an answer, and their investors are getting nervous.
E-Trade Financial Corp. is the most notable among the 19 publicly traded firms that have been waiting at least two weeks for responses to requests to participate in the Treasury's Troubled Asset Relief Program. Since filing its application Nov. 7, the share price of the online brokerage, which has $47 billion of thrift assets, has fallen more than 45%, to 94 cents a share Thursday.
Some applications might just take longer than others, but observers said the passage of time can stoke fears that an institution is not deserving of an injection.
"You want to be careful about announcing that you're applying, because then you're going to be forced to announce the result, and if it's not a good one, it's going to be very negative," said Kip Weissman, a securities lawyer at Luse Gorman Pomerenk & Schick.
A report released Thursday by KBW Inc.'s Keefe, Bruyette & Woods Inc. listed 92 publicly traded companies that announced Tarp requests and are still awaiting a reply. Of those, eight have been waiting since late October. Center Financial Corp., a $2.1 billion-asset holding company in Los Angeles, applied on Oct. 23. Since then its stock has fallen 40%.
Experts said that, while securities laws do not outright require companies to publish whether they have asked for such assistance, they are still under substantial obligation to be open about their application, including whether it has been denied.
"It's a material event. I would expect that they would announce any decision in regards to receiving or not receiving Tarp money," said Richard H. Reppetto, an analyst with Sandler O'Neill & Partners LP.
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities, said publicly traded companies "owe it to shareholders" to announce that they have applied for Treasury funds, even if they know the application might be rejected.
But, he said, a bank that is denied access to the government money should be prepared to move promptly to find a merger partner, because customers will interpret the denial as a sign that the bank is in trouble.
"There is going to be a confidence crisis," Mr. Rabatin said. "If you know that your bank didn't get in on Tarp, what are you going to do? You're going to take your deposits and move them to another bank."
The criteria for assessing applications are vague. The Treasury has said it would take into account a bank's Camels ratings and whether it could attract private capital. But in a research note Thursday, Mr. Rabatin said banks with construction loans exceeding total risk-based or Tier 1 capital, classified assets above 100% of capital, and nonperformers greater than 40% of capital are being scrutinized more heavily and could be ultimately be denied the Treasury money.
The thinking, Mr. Rabatin said in an interview, "is that if you have too much exposure to construction, then there's a good chance you may need more than one round of capital."
E-Trade, which applied for $800 million, has had its share of problems in the market turmoil. It lost $236 million in the first nine months of the year, compared with a profit of $270 million for the first three quarters of 2007.
Its thrift units reported loan delinquencies of $1.5 billion at Sept. 30, up 92% from the same period last year.
Despite its difficulties, Donald H. Layton, E-Trade's chairman and chief executive officer, sounded upbeat about its prospects for getting Treasury funds. He was "optimistic that we will receive approval and expect to make an announcement this month," he said in a Nov. 7 press release.
Pam Erickson, an E-Trade spokeswoman, downplayed the impact of uncertainty over its Tarp application on its share price, blaming the broader market decline.
"Our stock price reflects many factors, including the overall uncertainty that has permeated the markets, driving down values of indices and companies across sectors," Ms. Erickson said. "Our stock is trading in conjunction with the broader market. The current share price is not an indicator of the operational stability, solvency or long-term value of E-Trade." (E-Trade said it opened more accounts in October than in any month over the last five years. See
Some other banking companies whose applications are still in limbo have seen their share prices plummet as well.
Shares of the $14 billion-asset Flagstar Bancorp are down nearly 74%, to 50 cents a share, since the Troy, Mich., thrift company announced it had filed an application with the Treasury on Oct. 31.
In a letter to E-Trade customers on Thursday, Mr. Layton said his company is confronting its challenges, including holding $516 million more in capital than what is required to be well capitalized. Still, he said, the "company's franchise is not immune to the market's volatility."
Some observers said it could be that with regulators choosing to approve the easy bids before moving on to the more complicated ones, it is taking a while for some companies to hear about their applications.
Turnaround may have slowed since Nov. 14, the application deadline for publicly traded companies.
"Particularly for applications that have gone in more recently, you would expect some passage of time because of the volume of applications," said John Murphy, a former general counsel at the Federal Deposit Insurance Corp. and now a partner at Cleary, Gottlieb, Steen & Hamilton.
Mr. Weissman said, "It's certainly conceivable that they would take the easy ones first, and put the more marginal applications in a separate file."
What's more, he said applicants likely discussed their eligibility with regulators before applying.
"You're able to get a fairly accurate read from the regulators in most cases about whether you're going to be successful," Mr. Weissman said. "We certainly are advising our clients to discuss it with their regulators before they apply. If the regulators give you a strong indication that you're going to get approved, then our experience is that in most cases that you do get approved."
