Many of the top banks in the Nashville area — including Regions and SunTrust — already have announced plans to sell preferred stock to the U.S. Treasury for billions of dollars, part of the government's plan to stave off economic crisis.
But now, many smaller regional or community banks are wondering if they should sell a piece to the government, too, and some say they feel subtle pressure to take part.
"It's like you don't want to tell anyone you weren't invited to the prom," said Art Helf, chairman and chief executive officer of Franklin-based Tennessee Commerce Bank.
The U.S. Treasury has committed $250 billion to buy stock in U.S. banks in the hopes of unfreezing tight credit and getting the U.S. economy rolling again.
Already, the government has handed out $125 billion to nine of the largest banks, including Bank of America, Citigroup and Merrill Lynch & Co. Several other banks have applied for a slice of the rest, including Regions, SunTrust and First Horizon National Corp., the parent company of First Tennessee Bank.
On Friday, Birmingham, Ala.-based Regions announced it had sold $3.5 billion in preferred shares to the federal government. Like other publicly traded banks that take part, Regions will have to pay the government a
5 percent dividend for five years (that equals $175 million annually for Regions) and 9 percent after that, unless it buys back the shares from the government.
Banks also have to give 10-year warrants for the government to buy common stock, benefiting from any future stock price gains.
Publicly traded banks had until Friday to apply to sell stock to the government. But Treasury Secretary Henry Paulson has indicated that all financially healthy banks will have an opportunity to take the government's cash, including privately owned financial institutions.
"I think most community banks will apply for it,'' said Katie Edge, a bank lawyer at Miller & Martin in Nashville. She said the deadline and rules for non-public banks to apply haven't been announced yet, which will factor into a bank's willingness to participate.
"Most of them didn't want to participate in the program because they thought their shareholders and customers would say you needed to be bailed out," she said.
But when Paulson said the money would go only to financially strong companies, banks worried that they had better apply in order to appear strong, Edge said.
Few strings attachedIt has been a difficult environment for banks to raise money, either from shareholders or potential buyers. The government is making itself a willing investor.
Plus, there are relatively few strings attached. Banks can either lend out the money, use it to acquire other banks, or pay down bad debt. There are some limits on executive pay for banks that participate in the program.
Terry Turner, the chief executive officer and president of Nashville-based Pinnacle Financial Partners, a publicly traded company, said he believes most publicly traded banks will take the money.
Small community banks, on the other hand, many of which are not publicly traded, may take a stance against government involvement in their business, Turner said.
Another problem is what to do with the money.
Reliant Bank, which has branches on Nolensville Road in Davidson County and in Cool Springs, would be eligible for between $2 million and $6 million, said the bank's president and chief executive officer, DeVan Ard. But the bank would have to figure out how to make a profit on that, presumably while still paying dividends to the government.
In an economic downtown, many banks are less willing to lend, and fewer business owners want to make new loans to expand.
"If you can't leverage it and use the capital to grow your business, you ought to say 'thanks but no thanks,' '' Ard said. "The need for additional capital to support our lending and growth opportunities is just not there right now."
Renasant passesTupelo, Miss.-based Renasant Corp., which is publicly traded and has six locations in the Nashville area, is one bank that has said, "No thanks."
The bank announced Friday that it would not participate in the government's stock purchase program.
"Renasant is currently well capitalized, and we believe that our strong capital position, coupled with future earnings, should allow us to meet projected balance sheet growth, deal with the downturn in the economy and take advantage of strategic growth opportunities,'' the company's chairman and chief executive officer, E. Robinson McGraw, said in a statement.
