Allison: TARP was a good deal for government and Home BancShares
Home BancShares Chairman John Allison was downright effusive Tuesday afternoon as he talked about ending the company’s relationship with the federal TARP program.
On July 6, the bank holding company bought back the $50 million in preferred shares sold to the U.S. Treasury at the beginning of 2009.
Home BancShares, the parent company of Centennial Bank, is the fourth Arkansas-based financial institution to come out from under the federal Troubled Asset Relief Program (TARP).
Home BancShares (Nasdaq: HOMB) closed up 68 cents at $25 a share on Tuesday, an all-time high.
Back in 2009, the financial outlook was troubled, indeed. Bear Stearns and Lehman Brothers had failed.
“I could see financial collapse on the horizon, and I feared something far bigger than Conway, Arkansas was going on,” Allison said Tuesday. “We took the TARP money — $50 million — for security. We counted it as tier-one capital, and that strengthened our already-strong balance sheet.
“We used the money to buy six failed FDIC institutions.”
In 2010, the banking operations of Old Southern Bank, Key West Bank, Coastal Community Bank, Bayside Savings Bank, Wakulla Bank and Gulf State Community Bank, all in Florida, were acquired through loss-sharing agreements with the Federal Deposit Insurance Corporation.
All of the offices of the acquired institutions immediately began operating as branches of Centennial Bank.
The TARP money was expensive, Allison said.
“The cost was about 8.6 percent pre-tax. That’s been very expensive money,” he said. “We paid the government a 5 percent dividend on $2.5 million a year. That’s $625,000 a quarter. We’ve been paying that for 2 1/2 years.
“So, we decided to pay it off. Not having that $2.5 million a year payback, well, that amounts to about 10 cents a share for our stockholders. This is big news.”
There are other benefits to being out from under TARP restrictions.
There has been no increase in cash dividends in 2 1/2 years, and the company couldn’t pay executives cash bonuses.
“Those restrictions are gone,” Allison said. “We are one of the best capitalized banks in the country, but some investors don’t like TARP banks; they think they are in trouble. So we may get some new investors.”
Allison said TARP was a good decision.
“We didn’t know what was going to happen,” Allison said. “We thought it was the end of the world. Under the same circumstances, I would do it again.”
He believes TARP got a bad rap.
“It was a good deal for the government,” he said. “They got a good return on their investment. We paid back every penny. In addition, they got 158,000 warrants, an option good for 10 years to buy shares at $23.65 each.
“Say the stock goes to $30 — and I believe it will — they’ll turn around and sell. That would be a million dollar icing on the cake.”
And so, Allison the trader, was on the phone on Tuesday with the U.S. Treasury, working a deal to buy back those shares.
“They were very friendly,” Allison said. “I said I want to trade today. I made an offer. Too low, they said. I came back with another. They said they’d call me tomorrow.
“We may have a deal.”
Home BancShares will release second quarter 2011 earnings at 7:30 a.m. Thursday, followed by a Webcast at 1 p.m. at www.homebancshares.com/investorrelations.html
“We’ll be live and in color,” Allison said.
(Staff writer Becky Harris can be reached at becky.harris@thecabin.net and 505-1234. Harris owns stock in Home BancShares.)
Comments (8)
Add commentOkay then
I own a few shares of this stock so it sounds like the future is bright. I was against TARP and would oppose anything similar again. For the most part I would like for government to stay out of private business.
Sure they'd do it again
They got a load, er, I mean a "loan" of our tax money they admit now they didn't actually need so they could pick up some cheap assets in Florida.
"Potter isn't selling, Potter's BUYING."
I wonder if the LCD would think it as interesting to identify the local banks who did NOT graze at the government trough while the country was weathering the storm.
Good point
Good point GM. However, they did pay it back at a high interest rate.
IEatCarp and GM....you are a
IEatCarp and GM....you are a couple of my favorite posters, keep it up. I really struggle finding a good reason why in American it is was ok for a private company to take TARP money. The government needs to stay out of the business of private business, of picking winners and losers for tax payer dollars. It was wrong then and wrong today!
"I really struggle finding a
"I really struggle finding a good reason why in American it is was ok for a private company to take TARP money. The government needs to stay out of the business of private business, of picking winners and losers for tax payer dollars."
I would say you are contradicting yourself. The bank was not forced to take the money, it voluntarily took it, and then paid it back at a higher interest rate, so now the government has more than it started with.
Nice try though.
Please explain contradiction.
Please explain contradiction.
IMO, government making money available to some financial institutions and not others is picking winners and losers and was wrong.
Obama has already explained TARP
Those selected companies are too big to fail, they're not picking winners and losers, they are just determining who is too big to fail.
whos money?
I love it when people refer to this money. The money that the gov had that is then sent to these banks to then draw interest when repayed. Everyone seems to forget that the gov does not have money, they BORROW money and they borrow it from the Fed with interest. Now the funnier part is that WE and our kids and grandchildren will be the ones to pay it back. While its nice to hear that banks are paying back some of the tarp money, you should see what the gov is doing with it. They certainly aren't using it to pay who they borrowed it from.
Heres a better analogy. Let me get a cash advance on my credit card at a high interest. Then let me lone it to you for a high interest. Then when you pay me back my money, I will go and buy a PS3 or XBOX with it instead of paying back my credit card. Ohh, and my credit card limit has been reached so I am now asking them to raise my borrowing limit. INSANE!