TCF Financial chief executive Bill Cooper has discovered that it's a lot easier to accept a federal subsidy than it is to pay it back.

After nearly two months of negotiations with federal regulators, TCF announced Monday it received approval to pay back the $361.2 million the federal government invested in TCF preferred shares last November at the height of the financial crisis.

But at the urging of federal regulators, the Wayzata-based regional bank will slash its quarterly dividend by 80 percent to 5 cents per share from 25 cents -- the first dividend cut since the bank was formed nearly 20 years ago.

What's more, the bank hasn't fully extricated itself from the Treasury's bailout program. The federal money came with millions of stock warrants attached, which the federal government has not returned to the bank.

In an interview Monday, Cooper said the bank was informed of the approval last week in a two sentence e-mail from the Treasury. He remains concerned that the federal government will either hold on to the warrants -- and thus maintain more suasion over the bank's activities -- or demand payment, which would add to the costs of TCF exiting the bailout program, also known as the Troubled Asset Relief Program, or TARP.

Cooper, sounding more like a borrower than a banker, likened any compensation for the warrants to a "prepayment penalty," a fee banks may charge when someone pays off a loan early.

The warrants give the U.S. Treasury the right to buy 3.2 million shares of TCF stock over the next 10 years at $16.93 a share. TCF shares closed at $14.35 Monday, down 5 percent. If the federal government exercises those warrants, TCF would have to issue 3.2 million shares -- slightly diluting existing shares. About 120 million shares are outstanding.

Cooper wants the Treasury simply to return the warrants -- free of charge. A decision is expected within the next 10 to 15 days, he said.

"If they keep [the warrants], it's potentially a problem," Cooper said. "It's like having your mother-in-law move into your downstairs bedroom."

'We never needed the money'

What at first seemed like a show of financial strength -- TCF is the largest financial institution in the country to pay back its bailout money -- has become a bit messier than the bank anticipated.

The dividend cut was seen by some analysts as a sign that federal regulators might be less confident in the strength of TCF's balance sheet than its management and board of directors, who had held out against reducing the dividend despite a wave of cuts by competitors.

Jason Ren, a bank analyst at Morningstar, said that while TCF's loan underwriting standards have been stronger than its peers, the bank has an unusually large portfolio of home equity loans, many of which could turn sour as job losses increase and housing prices continue to decline.

About half of the bank's $13 billion loan portfolio consists of home-equity loans, Ren said. And about 17 percent of TCF's loan book is in Michigan, which leads the nation in unemployment and is tied to the weakening manufacturing sector, he added.

Given the worsening economic trends, cutting the dividend was "a prudent move," Ren said. "It's better to build capital by cutting the dividend than to play it risky and keep the dividend where it is, and then try to raise equity," he said. "That would be much more expensive and dilutive."

TCF said in a written statement that its "capital position remains strong despite repayment" of the federal bailout funds. After repaying the federal subsidy, along with $9 million in interest, TCF said its tangible common equity -- a measure of how much capital a bank has to absorb loan losses -- was still "well over 5 percent," a level that many investors consider necessary for a bank to be well capitalized.

By exiting TARP, the bank also will not have to make millions of dollars in monthly dividend payments to the government on the preferred shares. Cooper said the payments would have cost the bank about $18 million, or 14 cents a share, in 2009.

Cooper has made no secret of the fact that he never wanted to participate in TARP -- "We never needed the money," he said -- but says his bank was pressured into taking the funds in order to appear well-capitalized. However, public opinion toward bailout programs turned hostile, and the federal government began placing extra restrictions on banks receiving the money.

Earlier this year, several large banks were criticized for organizing lavish trips and paying millions in bonuses to executives while receiving federal bailout money. TCF was criticized for holding a team-building event for about 180 of its managers at a ski resort near Aspen, Colo.

Fueled by popular outrage, legislators and regulators have imposed more rules on banks receiving TARP help, including limits on executive pay and increased disclosure on how the federal loans are spent.

Cooper, a steadfast proponent of less government regulation, wanted out.

"We took it because word was that only institutions that were sound would get it," he said. "We were strongly encouraged to take it to be good corporate citizens. ... Now, if you've still got it, you're stigmatized as evil people stealing money from taxpayers."

Chris Serres • 612-673-4308