U.S. Bank parent to get $6.6B from Treasury
St. Louis Business Journal
U.S. Bancorp plans to join the ranks of big banks swapping preferred stock for capital under the U.S. Treasury Department’s financial rescue program.
The Minneapolis holding company for U.S. Bank said Monday it received preliminary approval for the sale of $6.6 billion of preferred stock and related warrants to the U.S. Treasury. U.S. Bank is the St. Louis area's largest bank with $8.2 billion in deposits.
The agreement is part of the voluntary Capital Purchase Program of the Emergency Economic Stabilization Act of 2008, designed to infuse capital into the nation’s healthiest banks to increase the flow of financing to American consumers and businesses. The recent wave of mortgage defaults has rippled through the financial sector, as banks have grown fearful of lending money to someone that might be exposed to the problem.
U.S. Bancorp has been relatively insulated from the worst of the mortgage crisis, however, and in a statement it called its capital position “solid.” Its capital ratio (the percentage of a bank’s capital to its risk-weighted assets) will rise from 8.5 to 11.4 percent as a result of the new deal.
Other banks with local operations, including Fifth Third Bancorp (NASDAQ: FITB), First Financial Bancorp (NASDAQ: FFBC), Huntington Bancshares (NASDAQ: HBAN) and KeyCorp (NYSE: KEY) have either applied for, or been approved for Treasury funds.
Under the agreement, U.S. Bancorp (NYSE: USB), the parent company of U.S. Bank, would issue preferred stock to the U.S. Treasury at an annual rate of 5 percent for five years; increasing to 9 percent per year thereafter, if the preferred shares were not redeemed by the company. The Treasury Department would also receive 10-year warrants entitling it to buy common stock of U.S. Bancorp with a value equal to 15 percent of the amount of the preferred stock issuance.
Companies participating in the program must adopt the Treasury’s standards for executive compensation and corporate governance while the Treasury holds equity in the company, issued under the program. Among the Treasury’s standards, participating financial institutions are prohibited from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision and must agree not to deduct, for tax purposes, executive compensation of more than $500,000 for each senior executive.
lriggs@bizjournals.com
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