While the nation's biggest banks have yet to live down the stigma of having borrowed billions of dollars from the government's Troubled Asset Relief Program, dozens of smaller, lesser-known banks face a different challenge: keeping up with their quarterly TARP dividend payments.
"Our bank has always paid its bills. This is very unusual for us," said Mark Fortino, the executive vice president and chief financial officer of Kansas-based Blue Valley Ban Corp., which has reluctantly missed five quarterly dividend payments. "We don't like not fulfilling our obligations."
Blue Valley was one of 91 financial institutions to miss the government's May dividend payment deadline, according to analysis by SNL Financial of a recent Treasury Department report. Most banks on what some have dubbed a "deadbeat" list are relatively small, with more than half managing less than $500 million in assets. (In contrast, Bank of America, JPMorgan Chase and Citigroup each have more than $2 trillion in assets.)
Despite their TARP delinquency, the banks have largely escaped the taxpayer outrage and public demonstrations that have dogged the largest banks, most of which repaid TARP last year.
Officials at the SEIU, which has staged multiple protests against the practices of the so-called "big six" -- Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo -- expressed sympathy for smaller, beleaguered banks.
"Of course, a bank based in a community that's in deep trouble is going to have a harder and harder time stabilizing itself," said Stephen Lerner, the director of banking and financial reform for the SEIU. "Part of the problem we have is the crisis has passed for Wall Street and the big banks, but once you get off Wall Street and you get to Main Street, the economic crisis is as bad as it was, in some cases worse than it was in the past."
Requiring banks that borrowed from TARP to pay dividends -- earnings distributed to shareholders -- to the government was touted as a lucrative part of the program that proponents say helped save the financial system from ruin. When banks like JPMorgan Chase repaid their TARP debts last year, those payments included hundreds of millions of dollars in dividends.
The Treasury Department said that, overall, banks have paid 98 percent of the dividends they owe, adding up to $9 billion in dividends over the last two years.
But dozens of smaller banks haven't been part of the trend because, experts say, they're not able to raise money as quickly or easily as their behemoth peers and because they're more vulnerable to problems in their local economies.
Fortino said his bank is struggling with the latter. The 20-year-old financial institution is a major lender to real estate developers in and near Johnson County, Kansas, Fortino said. When those developers started struggling, so did Blue Valley Ban Corp., he said.
Regulators Block Banks From Making Dividend Payments
The bank has lost money for the last two years, Fortino said, though he was quick to add that losses for the first quarter of 2010 -- $873,000 -- were far smaller than those during the same period in 2009, when the bank bled $8.1 million from its books.
"We've seen significant improvement fom the previous year but we're still working through our more challenging assets and that's just going to take some time to let the economy recover and see our customers begin to recover as well," he said.
Its challenges notwithstanding, Fortino said that Blue Valley has set aside money to pay what it owes the government in dividends -- more than $1.3 million total -- but it faces another hurdle: Its regulator, the Federal Reserve Bank of Kansas City, has asked the bank to withhold its payments for now because of concerns over Blue Valley's continued lack of profits, Fortino said.
Blue Valley isn't the only bank under instruction from government regulators not to pay its TARP dividends. Westminster, California-based Saigon National Bank, which has missed six TARP dividend payments, told SNL that the Office of the Comptroller of the Currency has blocked the payments.
A government regulator who declined to be named discussing specific institutions said regulators ask banks not to pay dividends -- including those owed the government -- when concerns arise that a bank is low on capital or when there are risks to the bank's profitability.
"Anything that would harm a bank's capital when a bank is at a minimum capital level -- the regulators are going to watch that very closely," he said. In other cases, he said, particularly with respect to new banks, "capital may be fine but profitability may be not so fine."
Fortino said government regulators may be taking a "why rush things?" approach with respect to TARP dividend payments.
"They're trying to make sure the system is safe and sound -- that's their job," he said. "As much as we want to pay it, I can definitely understand from the government standpoint and the Fed standpoint why they're taking the position that they are."
Being late on TARP dividend payments, however, is not without consequence. Under the rules of the program, if a bank misses six payments, the Treasury has the right to elect two new directors to the bank's board.
Saigon National, with its six missed payments, would theoretically trigger the provision, but the bank said it hasn't heard from Treasury on the issue.
Asked whether the Treasury plans on adding directors to any bank board, a department official would say only that the Treasury "is considering a number of options in that regard."