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Two more large banks to get cash injections
U.S. Bancorp will receive $6.6 billion and TCF $361 million from the Treasury Department's capital investment program.
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Two more of Minnesota's largest banks are rolling up their sleeves and accepting injections of capital from the U.S. government.
U.S. Bancorp said Monday it will get $6.6 billion from the Treasury Department's program to invest $250 billion in banks to stimulate the economy and stabilize financial institutions. TCF Financial Corp. said it will get $361 million.
Minneapolis-based U.S. Bancorp said it is financially sound and doesn't need additional money to make consumer and business loans. But it decided to accept the capital at attractive interest rates because competing banks have done so.
"It's a very economical way of raising capital, and I would say all of our peers got the money, even smaller banks," said Judy Murphy, a U.S. Bancorp spokeswoman.
The bank's big Twin Cities rival, Wells Fargo & Co., received $25 billion last week.
U.S. Bancorp didn't specifically say whether it would use the money to acquire other banks at a time when many are financially troubled. But it said the government investment could help it "invest for future growth."
The company will get the $6.6 billion by selling preferred stock and warrants to the government. The preferred stock pays dividends equaling an interest rate of 5 percent a year for five years. If the preferred stock isn't redeemed during that time, the rate will go to 9 percent.
The government will also receive 10-year warrants to buy common stock in U.S. Bancorp worth up to 15 percent of the amount of the preferred stock the government receives.
"Given the cost of this capital, which at 5 percent is very low, they're at a competitive disadvantage if they don't participate," said Jon Arfstrom, an analyst at RBC Capital Markets in Minneapolis. If they don't need the capital, they can always give it back."
While many banks are less able to lend money because of the national financial crisis, U.S. Bancorp, one of the nation's 10 largest banks, has been less affected, Arfstrom said. As a result, it could use the additional capital to make more loans than it normally does, or save it for internal growth or an acquisition.
"There's nothing to prevent U.S. Bancorp from using the money to acquire other banks," Arfstrom said. "In fact I think the government is interested in merging troubled banks with healthy ones, as well as encouraging banks to lend money again."
However, acquisitions have not been a priority at U.S. Bancorp.
"I think they'll look, but it would have to be the right deal and be priced properly," Arfstrom said.
In a prepared statement, Wayzata-based TCF said it believed it was able to get the investment because "TCF is regarded as one of the country's safe and sound financial institutions." A phone call seeking comment Monday afternoon was not returned.
TCF will receive a $361 million investment in its preferred stock. The government will also receive a warrant for the right to purchase about 3.2 million shares of TCF common stock.
Restrictions on the use of the federal money include a prohibition on raising dividends or buying back common stock without government permission. Compensation of top bank executives also is limited.
Most banks have been hit hard over the past year and a half by a sharp rise in mortgage defaults and a freezing of credit markets. As some financial firms collapsed, many banks shied away from lending to each other and to customers for fear that losses would continue to rise. U.S. Bancorp has been able to weather the downturn fairly well, and was already considered "well-capitalized" by regulatory standards before the government investment. Its capital ratio will increase to about 11.4 percent after the investment, from 8.5 percent.
The Associated Press contributed to this report. Steve Alexander • 612-673-4553
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