Alert October 21, 2008

The Treasury, FDIC, FRB, OCC and OTS Release Application Guidelines for the TARP Capital Purchase Program

On October 20, 2008, the Treasury, in conjunction with the FDIC, FRB, OCC and OTS (collectively, the “Federal Banking Agencies”), released application guidelines for financial institutions interested in participating in the TARP Capital Purchase Program (the “CPP”).  For a detailed discussion of the CPP, please see the October 14, 2008 Alert.  To apply for the CPP, financial institutions should review the CPP terms and conditions available on the Treasury’s website and consult with their primary federal regulator.  After this consultation, qualified and interested financial institutions must submit an application to that regulator.  Bank holding company applicants should submit applications to both their holding company supervisor and the supervisor of the largest insured depository institution controlled by the applicant.  A single, standardized application form has been finalized by the Treasury in consultation with the Federal Banking Agencies.  The application requires the applicant to submit basic information about the institution, the amount of perpetual preferred shares the institution is requesting that the Treasury purchase under the CPP, and information regarding the amount of authorized but unissued common and preferred stock the institution currently has available for purchase.  To ensure consistency, the Treasury has worked with the Federal Banking Agencies to establish a streamlined and standardized process to review all applications.  Once a Federal Banking Agency has reviewed an application, it will send the application and its recommendation to the Treasury’s Office of Financial Stability.  The Treasury will review the application and determine whether to make the capital purchase.  In his public remarks on October 20, 2008, Treasury Secretary Henry Paulson stated that the Treasury will give considerable weight to the recommendations by the Federal Banking Agencies.  All capital purchase transactions will be announced within 48 hours of execution.  There will be no public announcement of applications that are withdrawn or denied.

The terms for the CPP are the same for all financial institutions.  A summary term sheet is currently available on the Treasury’s website and a detailed investment agreement and associated documentation will be soon be posted on the website.  Each applicant must obtain and review a copy of the CPP agreement and agree to all of the terms and conditions, including representations and warranties, contained in the agreement.  Applicants also must identify and describe any mergers, acquisitions or other capital raisings that are currently pending or under negotiation along with the expected consummation date of such transactions.  Any applicant desiring confidential treatment of specific portions of the application must submit a request in writing with the application that discusses the justification for the confidential treatment.  If a financial institution files an application prior to the availability of the investment agreement and associated documentation, the applicant must file an amended application which includes updated responses to any items in the application that required prior review of the investment agreement.  In the event that an applicant cannot, by November 14, 2008, take action to be in compliance with all of the terms and conditions, including the representations and warranties, contained in the investment agreement, the applicant must provide with their application an explanation of the condition or conditions that cannot be met and the reasons the condition or conditions cannot be met.  Upon receiving the Treasury’s preliminary approval to participate in the CPP, the applicant will have 30 days following the date of notification to submit the investment agreement and related documentation. 

All capital purchases under the CPP will occur at the highest-tier holding company in cases which the financial institution has a bank holding company or a savings and loan holding company.  In such cases, the capital purchased by the Treasury under the CPP will be cumulative senior perpetual preferred shares of the highest tier holding company.  In the case of an insured depository institution that is not controlled by a holding company, the capital eligible for purchase by the Treasury under the CPP will be non-cumulative senior perpetual preferred shares of the insured depository institution.  The shares purchased under the CPP must be pari passu with the most senior preferred shares available by the applicant.  As previously discussed in the Alert, the maximum amount of capital eligible for purchase by the Treasury under the CPP is the lesser of (i) an amount equal to 3 percent of the total risk-weighted assets of the applicant or (ii) $25 billion.  The minimum amount eligible for purchase under the CPP is the amount equal to 1 percent of the total risk-weighted assets of the applicant.  All measurements will be based on the information contained in the latest quarterly supervisory report filed by the applicant with its primary federal regulator updated to reflect events materially affecting the financial condition of the applicant occurring since the filing of such report.

In his remarks, Secretary Paulson stated that sufficient capital has been allocated to allow all qualifying banks the opportunity to participate in the CPP.  He further stressed that the CPP is not being implemented on a first-come-first-served basis.

The application form for participation in the CPP is currently available on the websites of the Treasury and each of the Federal Banking Agencies.  All applications must be submitted no later than 5 p.m. (EST) on November 14, 2008.