Local and regional banks aren't to benefit directly from any government rescue package, leading some in the industry to criticize the latest plan from Treasury Secretary Henry Paulson and the Bush administration to buy stock in the nation's banks.
"I don't think the community banking segment is what the government is trying to save,'' said Kevin Reynolds, a bank analyst with Janney Montgomery Scott in Memphis.
Peyton Green, a bank analyst for FTN Midwest Securities, said the government rescue package is mostly geared toward the top 25 financial institutions.
Richard Herrington, president of start-up Franklin Synergy Bank in Franklin, said Main Street banking is much healthier than the Wall Street variety.
"I don't think the government should own stock in companies,'' said Herrington, who did well by raising $26 million in capital last year before bank stocks plummeted.
Memphis-based First Horizon National Corp., the parent company of First Tennessee, which has lost 62 percent of its value in the last year, may want to sell some bad assets back to the government, but its chances of survival don't depend on it,
said Reynolds, the stock analyst.
The company sold $690 million worth of stock in the spring and is well capitalized, he said.
Still, the government's lifeline, together with projections that the stock market may have reached its bottom rung last week, helped the Dow Jones industrial average shoot up 936 points Friday, a record point total.
Financial stocks in general benefited from the Dow's biggest gain since the Great Depression.
First Horizon stock was up 13.44 percent to $9.20 per share in trading Monday on the New York Stock Exchange. Pinnacle was up 12.06 percent to $27.97 per share. A handful of bank stocks actually were down, including Regions Financial Corp., which lost 3.28 percent to $8.84 per share on the New York Stock Exchange.
Big banks meet PaulsonThe huge rally on Wall Street came as Paulson summoned the CEOs from the five largest banks for discussions on details of the government's $700 billion financial rescue package. It has rapidly expanded in recent days from buying up distressed mortgage-related debt from banks to also include the government taking partial ownership in banks themselves, a radical departure for the free-market Bush administration.
That led to Monday's scene: Federal officials crafting a plan for government ownership that Paulson until recently had resisted. And the CEOs of Wall Street powerhouses like Goldman Sachs Group Inc. and Citigroup Inc. sitting down to discuss with Treasury and Federal Reserve officials the partial nationalization of banks.
"It certainly is a momentous intervention," said Henry J. Aaron, a senior fellow at the Brookings Institution, quickly adding that few expect the government's ownership to remain over an extended period.
Yet from the bankers' perspective, there could be anxiety over how much control the government may wield in return for its capital injection into struggling financial institutions.
"When government money is involved, the government sets the terms," said Ken Mayer, a professor of political science at the University of Wisconsin in Madison.
Looking to historyA historical parallel for the bankers' meeting in Washington occurred more than
70 years ago in Franklin D. Roosevelt's administration during the Great Depression.
While the government has used taxpayer money to bail out large corporations and banks in recent decades, intervention on the scale that has occurred since early September had not been seen since the 1930s.
In Middle Tennessee, even some community banks that have seen steep declines in their profitability aren't keen on the Wall Street bailout details.
Greeneville-based Green Bankshares saw its profits fall 80 percent to $1.46 million during the second quarter, mostly on bad real estate construction and development loans in Middle and East Tennessee. But the bank's chief financial officer, James Adams, doesn't see a need to sell bad assets or stock to the government.
"We can dispose of the majority of those assets on our own,'' he said. "The government taking ownership in those institutions doesn't make sense. Why put the taxpayer at additional risk?"
Nashville-based Pinnacle Financial Partners president and chief executive officer Terry Turner agrees.
"I'm an advocate of the government being proactive and taking action to increase confidence in the U.S. financial system,'' he said. But the government owning stock in financial institutions "effectively puts the government in the banking business. It's the government's job to regulate banks. That's a classic conflict of interest."
He said depending on how it was structured, the government's rescue plan could help some small community banks struggling under the weight of large amounts of bad real estate loans.
But, in large part, the community and regional banking industry won't need such a lifeline, Turner said.
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