Commonwealth National Undecided On TARP
Worcester’s own Commonwealth National Bank has been approved to get federal Troubled Asset Relief Program money, also known as TARP funds, but has not decided whether to take advantage of them, according to Commonwealth’s President and CEO Charles Valade.
The bank’s shareholders voted on Feb. 5 to allow the bank to issue preferred stock, which its bylaw previously did not allow, Valade said. Preferred stock is what the U.S. Treasury gets in return for loaning a bank TARP funds. Preferred stock is usually considered a higher ranking stock than common stock, which is typically bought on the stock market. The purchase of preferred stock is negotiated between the company and the investor.
“We’re well capitalized. We don’t need the capital to survive, but the more capital we have, the more we have to lend. We think that the restrictions on TARP are a little bit difficult. They’re treating us all like the Merrills and the Lehmans and we’re not. We don’t have a corporate jet, we don’t take our employees on trips to Las Vegas,” he said.
Perhaps most onerous to Valade is the stock that the federal government gets for very little money. “If we take the $7 million that we’ve been approved for, then they get 5 percent of what you take,” Valade said, which would be $350,000 in Commonwealth’s case.
There is also a provision that the banks that take TARP funds cannot pay the money back early, he said. Banks who take part in the TARP program have to wait three years to pay it back. And dividends are somewhat restricted: no dividends can be declared or given for junior preferred stock as long as the TARP investment the bank received has not been paid back.
Retirement agreements for executives also become a problem. “If the bank gets sold, under a change and control clause, retirement compensation to those executives would be available, but TARP doesn’t allow for any of that,” Valade said. “It makes it more difficult to keep senior people.”
“It seemed like a really good deal in the beginning, but as it doesn’t seem as good after we looked into it a little more. But we’re still deciding,” Valade said.
Commonwealth is the only bank based in Central Massachusetts that has applied for TARP funds.
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