Pittsburgh banks slow to repay millions in federal bailouts

Feb. 9--Ten of the 13 banks in the Pittsburgh area that received millions in federal bailouts have yet to pay back the money, according to government data.

But the delay in repaying is probably in shareholders' best interests, even if the public views it as banks on the dole, banking experts said Monday.

The 13 banks received a total of nearly $15.9 billion in taxpayer funds in 2008 and 2009 under the Troubled Asset Relief Program, or TARP. So far, only about $3.3 billion has been repaid.

Many banks don't want to rush to issue new common shares to raise capital to repay the TARP money until they determine their stock price won't decline, experts said. The fewer new shares needed to raise a given amount of money, the less it dilutes the value of existing shares.

"There is a little bit of a stigma that, 'Hey, can't they repay?' " said Tony Carfang, partner at Treasury Strategies, Chicago, a consultant to major banks worldwide, including in Pittsburgh.

"But it's very reasonable for them to say, 'if our stock price is still in the cellar, it's not in our shareholders' interest to issue lots more stock right now," said Carfang.

The Treasury has disbursed about $376 billion in aid -- in exchange for preferred shares that pay hefty dividends -- since TARP was created in October 2008. Of that amount, $173 billion has been repaid, primarily by the nation's largest banks, such as Bank of America, Citigroup and Wells Fargo.

PNC Financial Services, the nation's fifth-largest bank by deposits, said last Tuesday it would repay $7.6 billion in TARP money to redeem preferred shares later this month. The bank is funding the repayment mainly through the sale of about $3 billion in common stock, $2 billion in senior debt, plus $2.3 billion in proceeds from the sale of a business.

PNC stock closed Monday at $50.75, down $1.04, and is not far from its 52-week high of $58.94. "So it's not as dilutive to issue stock as for other regional banks," said Carfang.

On the other hand, S&T Bancorp and Parkvale Financial, for instance, are trading closer to their historic lows. Neither local bank has announced plans to repay the government money.

Earnings are weighing on stock prices, too. S&T net income of 28 cents a share in the October-December period, for instance, was less than half year-ago results.

"Some banks may have access to capital markets but not at a price that's worthwhile. So, they're holding off until later," said Robert Wagner, senior vice president at Boenning & Scattergood, a full-service securities brokerage. He added that market volatility, especially for bank stocks, has made it difficult to "know the right window" of time to issue shares.

Larger banks also have had TARP's compensation controls to consider. Recipient banks are not allowed to pay cash bonuses exceeding $500,000, for instance. But at the smaller banks "this isn't much of an issue," said Wagner.

While retaining TARP money, larger banks were subject to extra regulatory scrutiny if they wanted to expand into new businesses or markets, said Carfang.

"TARP has been a relatively cheap source of capital for the banks, so there is no big reason to be in a real rush to repay," said Wagner.

Thomas Olson is a Pittsburgh Tribune-Review staff writer and can be reached at 412-320-7854 or via e-mail.

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