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The Wall Street Journal was out with an article on Monday stating that over 1,800 publicly traded banks would likely seek access to the Treasury Department’s rescue plan.  While the total dollar figure being attached to the rescue plan is in excess of $700 billion, only $250 billion has been earmarked for bank recapitalizations.  While this is a large sum, it is increasingly looking as if more money will be needed given the sheer number of banks that have not yet received government investments. 

As we can see from the table below (via thestreet.com), nearly $170 billion has already been committed to supporting the institutions that control the majority of our banking system’s deposit base.  However, this leaves only $80 billion in Treasury funds for the support of our country’s remaining 8,000 banks, most of which are private and state chartered. 

In other words, it’s going to get messy from here on out as the Bush Administration will be forced to go back to Congress for more money, seriously reexamine the United States’ hybrid bank structure and be forced to develop an innovative method for delivering much needed capital to community banks.

These community banks will prove difficult to deliver capital to because they are either too small or unwilling to become public, yet they nonetheless serve a vital part in the American economy and will need government capital in order to ensure the success of the Bush Administration's bank bailout.  A simple division of the $80 billion dollars remaining among the 5,000 private and public banks likely to be working towards a government injection shows that they would on average receive a mere $16 million dollars, which is a surprisingly low figure and a cause for concern. 

Banks Receiving Government Investments

Bank

Ticker

Amount (in billions)

JPMorgan Chase

(JPM)

25.000

Bank of America*

(BAC)

25.000

Citigroup

(C)

25.000

Wells Fargo

(WFC)

25.000

Goldman Sachs

(GS)

10.000

Morgan Stanley

(MS)

10.000

PNC Financial Group

(PNC)

7.700

US Bancorp

(USB)

6.600

Capital One

(COF)

3.550

Regions Financial

(RF)

3.500

SunTrust

(STI)

3.500

Fifth Third

(FITB)

3.400

BB&T

(BBT)

3.100

Bank of New York Mellon

(BK)

3.000

KeyCorp

(KEY)

2.500

Comerica

(CMA)

2.250

State Street

(STT)

2.000

Marshall & Illsley

(MI)

1.700

Northern Trust

(NTRS)

1.500

Huntington Bancshares

(HBAN)

1.400

Zions

(ZION)

1.400

First Horizon

(FHN)

0.866

City National

(CYN)

0.395

Valley National

(VLY)

0.330

United Commercial

(UCBH)

0.298

Umpqua Holdings

(UMPQ)

0.214

Washington Federal

(WFSL)

0.200

First Niagra

(FNFG)

0.186

Old National

(ONB)

0.150

First Community

(FCBC)

0.043

HF Financial

(HFFC)

0.025

Redding Bank

(BOCH)

0.017

FFW Corp.

(OTCQB:FFWC)

0.007

Saigon National

(OTCQB:SAGN)

0.001

Provident**

(PBKS)

0.000

TOTAL

169.832

Source: The Financial Services Roundtable, KBW

*Includes Merrill Lynch (MER)**Hasn't decided to participate

 
The government capital injections make investing in banks difficult as it allows for an added variable that investors must take into account. Nevertheless, as this video from Bloomberg discusses, there are several metrics that can still be used by investors to gauge the risk of their bank investments.  According to the commentator, tangible book value, normalized earnings and “excess” regulatory capital are all important characteristics that investors should be knowledgeable of when investing in banks.  Even if his conclusions are poorly timed, the commentator does a nice job of laying out the framework needed for conducting bank investments. 

As we saw in the forced National City (NCC) sale, banks that have taken government capital should be viewed as having received a seal of approval from the government and can be considered by investors as safe havens in the financial sector and are more likely than not trading at once in a generation prices, regardless of the weakness in the economy going forward. 


Source: Increased Government Investment in Banks?