Local banks pass on government's cash infusion, for now

The government's capital-infusion plan for banks could help thaw the frozen credit market, but community banks in Hampton Roads aren't planning to take up the Treasury Department on its offer, several executives said Wednesday.

"It's good to know that the capital is available if we needed it, but I'd like to see more of the plan," said Jack Gibson, president and chief executive officer of Norfolk-based Bank of Hampton Roads.

The program, which the Treasury announced on Tuesday, is likely to help banks that were hit by losses from investments in mortgage-backed securities and the mortgage-finance companies Fannie Mae and Freddie Mac, Gibson said.

Several banks in the state, including Virginia Beach-based Gateway Financial Holdings Inc., witnessed sharp declines in their capital last month when the Treasury took control of Fannie and Freddie. Gateway agreed three weeks ago to be acquired by Bank of Hampton Roads' parent, Hampton Roads Bankshares Inc.

As part of its program to spur lending and instill confidence in the nation's financial system, the Treasury made $125 billion of capital available to nine giant banks, including Bank of America and Wells Fargo & Co. Wells Fargo is in the process of acquiring Charlotte, N.C.-based Wachovia Bank, which has the largest share of bank deposits in Hampton Roads.

As part of its capital-infusion program, the Treasury said it will invest another $125 billion in other banks throughout the country. The program calls for the government to receive non voting, preferred stock in return for the capital it provides. The preferred shares will pay an annual dividend of 5 percent for five years. After that, the dividend will climb to 9 percent.

The terms also restrict banks from paying dividends to owners of their common stock if they fail to first pay the dividends to the government.

"It looks like a fairly well- thought-out plan," Gibson said. "I think the risk of potential loss to the taxpayer is minimal."

Bruce Whitehurst, president and chief executive officer of the Virginia Bankers Association, said the program will have a positive effect on the nation's financial system by easing the liquidity problems that some large banks have encountered. However, "I would be surprised if a lot of banks line up to get this capital," he said.

Whitehurst said he wasn't aware of any banks based in Virginia that plan to use the program.

Old Point National Bank in Hampton has more than enough capital and wasn't interested in tapping the Treasury, said Louis Morris, its president and CEO. Old Point avoided making subprime loans, investing in Fannie and Freddie shares and pursuing activities that led to capital difficulties at other institutions, Morris said.

Like several other financial institutions in the region, Old Point is still addressing customer concerns about the safety of their deposits. Bank employees are spending more time counseling depositors on the FDIC's insurance coverage, and its executives are meeting regularly with customers in Old Point's branches, Morris said.

What's been valuable for Old Point, he said, is the FDIC's temporary expansion of its insurance coverage from the previous ceiling of $100,000 per person at a single institution to $250,000.

In addition, the FDIC is temporarily providing unlimited coverage for deposits in non-interest checking accounts. That's especially important for small-business depositors, who often have large balances but cannot broaden their insurance coverage by having a combination of accounts, Morris said.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com