After First Trade Union Bank was approved for U.S. Capital Purchase Program funds, President Michael Butler found himself – too often – trying to reassure clients the bank was healthy and the money was being put to good use.
But that proved to be tough going.
“Clients were asking if we were taking [Treasury Asset Relief Program] money, and clients were asking what we were going to do with it,” he said. “Because there has been a misconception about this, they thought it was taxpayer money that was going to be [misused].”
First Trade had applied for the money in November, intending to use it to bolster the bank’s small business lending. But after awhile, Butler said, the damage to First Trade’s reputation seemed too great a risk, and his efforts to clear the record didn’t seem to help.
Finally, the bank announced last week that although it had been approved to get $11 million in Capital Purchase Program funds, it would rather not take the money.
“Frankly, we’re disappointed as an organization because we thought it was an excellent plan. But I guess the execution has been flawed,” Butler said.
Not Going To Be #11
Many in the industry bemoan what they call widespread misunderstanding about the nature of the Capital Purchase Program. As part of the Treasury Asset Relief Program, CPP money is meant to boost lending for strong banks – not bail out weak ones, as is commonly assumed.
Ten Massachusetts banks have voluntarily accepted CPP funds, according to the U.S. Treasury’s Web site. Peter Garuccio, spokesman with the American Bankers Association, said many banks have opted not to take CPP money or are now trying to give the funds back.
CPP has been miscast as a bailout, he said, even though banks are encouraged to apply for the money and will eventually repay it, along with dividends.
Another major bone of contention has come with the government’s changing terms for participation in the program.
The government has the authority to change the terms of the agreement at any time, he said; it has already altered the rules on executive compensation for any bank using government funds, and that far-reaching authority casts a pall of uncertainty for banks nervous about what, exactly, the government may decree next.
“A bank has to say, ‘How much involvement in my institution do I want the federal government to have?’” Garuccio said.
Butler said the government’s changing agreements weren’t at issue, and that he knew executive compensation limits were likely from the get-go.
Mixed Bag
Jan A. Miller, president of CPP recipient Wainwright Bank in Boston, said he also entered the agreement with “eyes open” concerning changes to compensation. Wainwright, which got $22 million in December as part of the program, did not have to change its compensation as a result of recent government interventions.
But for Wainwright, the CPP money has been a mixed blessing.
“I’m not surprised that somebody would choose not to take it,” Miller said.
Public opinion on the program has changed significantly since its inception, thanks to decidedly mixed messages from the media, Congress and large investment banks, he said.
Wainwright got client questions about the program early on, but the bank had taken great care to train customer-facing employees on how to explain the program. That proved effective, Miller said, at least to the point where reputation issues haven’t created significant problems for Wainwright.
Also, money has allowed Wainwright to lend money more freely – as it was intended, Miller said.
“Can I say that we wouldn’t have done those [loans] without the investment? No … But does it help us to do that? It certainly does.”
Butler said he became uncomfortable with taking the money after seeing how quickly businesses could get slaughtered in the court of public opinion, even if their actions made perfect business sense.
“The community at large has been kind of driven to an understanding that TARP money is bad, and it’s related to bad activities, and it’s bailing out banks,” he said. “All of a sudden, the whole thing was tainted.”
