Some healthy local banks seeking bailout money

Nov 15, 2008 (Houston Chronicle - McClatchy-Tribune Information Services via COMTEX) -- MCBI | Quote | Chart | News | PowerRating -- Several local banks say they don't need the federal government's money, but they're asking for it anyway.

MetroCorp Bancshares is one that has applied to participate in the U.S. Treasury's Troubled Assets Relief Program, which is meant to inject capital into banks and get them lending again, even though it's well-capitalized.

"With the uncertainty moving ahead for the Houston economy, it just would be prudent to have additional capital," said David Choi, chief financial officer of the $1.6 billion bank.

The bank is looking to use the money to help shore up capital in case energy prices keep dropping and drag Houston's economy with them.

A steadily appreciating housing market and strong oil and natural gas prices in recent years helped keep the economy -- and its banks -- strong relative to the rest of the nation.

The exception so far has been Franklin Bank SSB, which regulators seized last week after it failed largely because of troubled real estate loans it made in California and other parts of the country riddled with housing woes.

While local banks may not need the money, they don't want to pass up an opportunity for cheap capital that would allow them to make more loans or acquire other banks.

"There is so much loan growth in Houston, this could help you not have to go back to investors to raise money," said Dan Bass, managing director of Houston investment bank Carson-Medlin Co. and an analyst who follows Texas banks.

Banks can receive capital injections worth between 1 percent and 3 percent of its risk-based assets. The Office of Thrift Supervision has received 120 applications under the program, a spokesman said.

That level of participation indicates banks are closing in on the $250 billion the Treasury set aside from the $700 billion bailout fund to buy stock in banks.

Houston's Encore Bancshares has preliminary approval to receive $34 million, CEO Jim D'Agostino said.

The bank isn't at risk, but the money would allow Encore to provide more loans, he said.

"As we've analyzed the program, we believe the capital is a reasonable cost," he said, adding that the bank won't decide if it will accept the money until December.

Houston-based Amegy Bank is slated to get about $350 million of the $1.4 billion its parent, Zion's Bank, will receive, CEO Paul Murphy said.

"This will allow us to continue our loan growth," he said, noting the amount could change. "The bank will focus on small-business loans."

The money has to be paid back with 5 percent interest, but that increases to 9 percent after five years.

"We can't just let this money sit there and do nothing," Murphy said.

Patriot Bank officials also said they don't need the capital, but the $965.8 million bank has applied.

Whether "we accept really will depend on where the final details come out on how they structure it," CEO Don Ellis said.

"If there are too many strings attached, we might not take it."

It's still unclear how much influence the government will want in the operations of those who take the money, giving some banks pause.

"Some banks are asking, 'Do they really want the government second-guessing them on not just lending decisions, but executive compensation and how they pay dividends?'" said Ken Thomas, a Miami-based bank consultant and economist. "So why take it if you don't need it?"

Others worry that applying or being rejected could wrongly imply they're having problems, he said.

Some banks balked at taking the money after weighing the costs.

"It's a lot more expensive than it appears," said Larry Fraser, chairman of Independence Bank.

If the $134 million bank needs more capital in the future, Fraser said he'd rather let shareholders raise it rather than be diluted by government money.

"We're just a little bitty bank," he said. "We don't need the government or anyone else messing with our business."

Houston's Tradition Bank also decided against the bailout money, CEO Downy Vickery said.

In addition to not needing the money, he said, Tradition didn't like the strings attached, such as having to pay dividends to the government before paying them to individual investors.

Prosperity Bank decided against applying as the deadline for public companies loomed Friday.

"We just decided we were well-capitalized," said CEO Dan Rollins. Houston-based Prosperity recently took over $3.7 billion in deposits from failed Franklin.

Woodforest National Bank, based in The Woodlands, is waiting for more details before deciding, Michael Richmond, vice chairman, said through a spokeswoman.

A spokesman for Houston-based Sterling Bank declined to comment Friday evening on the bank's status.

By Purva Patel and Brad Hem. The Associated Press contributed to this report.

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