Maryland Community Newspapers Online
Executives with three banks headquartered in Maryland said this week they plan to cash in on the new federal bank investment program.
Under the Treasury Department's capital purchase program, Provident Bankshares, the Baltimore parent of Provident Bank, obtained a $151 million investment, chairman and CEO Gary N. Geisel said. Severn Bancorp, the Annapolis parent of Severn Savings Bank, has been approved to receive $23.5 million and expects to close today, officials said.
And on Thursday, Sandy Spring Bancorp of Olney, parent of Sandy Spring Bank, said it received preliminary approval to sell up to $83 million in senior preferred stock.
In addition, Susquehanna Bancshares, the Lititz, Pa., parent of Susquehanna Bank, will receive $300 million through the program, executives said this week. Susquehanna is the 10th-largest bank in Maryland deposits, according to the Federal Deposit Insurance Corp.
Other banks that have accepted federal investments include Bank of America of Charlotte, N.C., and PNC Financial Services Group of Pittsburgh, the largest and second-largest banks in Maryland in deposits. Bank of America is getting $15 billion, according to a Treasury report. PNC executives have said the bank plans to obtain $7.7 billion.
Citigroup of New York, the 12th-largest bank in Maryland deposits, and Wells Fargo & Co. of San Francisco, which has agreed to purchase Wachovia Corp., the fourth largest bank in Maryland deposits, are each receiving $25 billion, according to the Treasury report.
The capital purchase program offers banks the opportunity to issue and sell preferred stock, as the government purchases shares. The idea is to provide additional capital to healthy, well-managed financial institutions, Geisel said in a statement.
"This investment will further strengthen our capital position, increase our ability to finance attractive lending opportunities and enable Provident to provide additional support for economic growth in our local markets," Geisel said.
For Severn, the infusion will increase the bank's regulatory capital from about $100 million to $130 million, chairman and CEO Alan J. Hyatt said in a statement. "While we are already a well capitalized institution, this infusion of low-cost capital….will further strengthen our ability to continue our long-standing tradition of lending in our community," Hyatt said.
"We are pleased to participate in this program which has been intentionally designed to stabilize our financial markets and provide an additional margin of strength to those institutions that are best positioned to weather the current economic climate," said Hunter R. Hollar, chairman and CEO of Sandy Spring.
Some lawmakers, including U.S. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, have criticized certain banks for using the federal investments for non-lending purposes such as acquisitions and paying dividends to shareholders. In testimony before Frank's committee this week, Federal Reserve Chairman Ben Bernanke said the initial $125 billion capital infusion to nine large institutions, including Bank of America, Citigroup and Wells Fargo, was part of initiatives that helped "stabilize the situation" and improve investor confidence.
"The ongoing capital injections … are continuing to bring stability to the banking system and have reduced some of the pressure on banks to deleverage, two critical first steps toward restarting flows of new credit," Bernanke said, according to a transcript from the Federal Reserve.
Banks are expected to "conduct regular reviews of their management compensation policies to ensure that they encourage prudent lending and discourage excessive risk-taking," Bernanke said.
Provident showed a net loss of $5.4 million in the third quarter, compared with earnings of $16 million a year ago. Severn reported net income of almost $600,000 in the third quarter, down from $2.4 million during the same period a year ago.
