Treasury Said to Consider Sales of Stakes in Small U.S. Banks

The U.S. Treasury Department is considering selling stakes and allowing mergers involving banks in the Troubled Asset Relief Program, an Obama administration official said.

The Treasury is also weighing the restructuring of some of about 370 remaining TARP banks that received government bailouts during the financial crisis and allowing third-party investments, said the official, who declined to be identified because the information hasn’t been made public.

The Treasury may become “more aggressive in offering financial incentives on a case-by-case basis to support third- party money and mergers,” said Kip Weissman, a partner at Luse Gorman Pomerenk & Schick, P.C. in Washington, who represents TARP banks. “The weak banks can’t repay the TARP without help and cajoling.”

After lenders including Citigroup Inc., JPMorgan Chase & Co., and Bank of America Corp. repaid taxpayer-funded bailouts, most firms left in TARP are small or regional banks. The largest include Regions Financial Corp. (RF) of Birmingham, Alabama; Zions Bancorporation (ZION) of Salt Lake City; and M&T Bank Corp. (MTB) of Buffalo, New York.

The possible sale of stakes in TARP banks was reported earlier by Dow Jones Newswires.

In November, the Treasury said it was working with investment firm Houlihan Lokey to explore options to help the government recuperate TARP money from banks.

Under TARP, originally approved by Congress in 2008 as a $700 billion dollar program to rescue financial institutions, the Treasury put cash into banks in exchange for equity stakes. Many bailout recipients repaid TARP funds, plus interest payments on preferred shares.

The Treasury has estimated that it will profit by about $20 billion on the bank portion of TARP. The U.S. Government Accountability Office, in a report last month, said the Treasury has highlighted projected gains while omitting estimated losses in press releases about federal bailouts.

To contact the reporters on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Meera Louis at mlouis1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.