Mercer Capital's financial institutions group published Mercer Capital's Capital Purchase Program Handbook on November 21, 2008.
Per the handbook:
After the financial crisis erupted in the third quarter of 2007, the federal government adopted a series of ad hoc responses. None of these programs, however, addressed the underlying reason for the turmoil—a mounting level of problem assets that were eroding banks’ capital and endangering the essential trust between counterparties that under-girds the financial system. To address these solvency concerns, the federal government devised the Troubled Asset Relief Program (“TARP”), which became law on October 3, 2008.
As market conditions continued to deteriorate, though, the implementation of the TARP changed. Realizing that repurchasing assets was unlikely to restore confidence in banks’ solvency, the Treasury’s priority shifted from repurchasing illiquid assets to direct investments in financial institutions. Over the weekend of October 10, 2008, the Treasury held meetings with the heads of the largest U.S. financial institutions, which led to the issuance of $125 billion of preferred stock by these institutions to the federal government. The government then announced that all U.S. financial institutions could apply for the program on similar terms. Thus, the Capital Purchase Program (“CPP”) was born.
The CPP has the potential to change the banking landscape for years to come. This handbook covers a number of topics related to the CPP, including the activity to date in the program, the advantages and disadvantages of participating, accounting issues raised, and the actual cost of the preferred stock after factoring in the warrants. While this handbook covers issues applicable to all banks, we specifically directed our analysis to privately held banks for several reasons. First, while many analyses of the CPP have been prepared, we have found little guidance intended for privately held banks. Second, participation in the CPP by privately held banks creates issues that are not faced by publicly traded banks, and we address these issues in this handbook. ...
As market conditions continued to deteriorate, though, the implementation of the TARP changed. Realizing that repurchasing assets was unlikely to restore confidence in banks’ solvency, the Treasury’s priority shifted from repurchasing illiquid assets to direct investments in financial institutions. Over the weekend of October 10, 2008, the Treasury held meetings with the heads of the largest U.S. financial institutions, which led to the issuance of $125 billion of preferred stock by these institutions to the federal government. The government then announced that all U.S. financial institutions could apply for the program on similar terms. Thus, the Capital Purchase Program (“CPP”) was born.
The CPP has the potential to change the banking landscape for years to come. This handbook covers a number of topics related to the CPP, including the activity to date in the program, the advantages and disadvantages of participating, accounting issues raised, and the actual cost of the preferred stock after factoring in the warrants. While this handbook covers issues applicable to all banks, we specifically directed our analysis to privately held banks for several reasons. First, while many analyses of the CPP have been prepared, we have found little guidance intended for privately held banks. Second, participation in the CPP by privately held banks creates issues that are not faced by publicly traded banks, and we address these issues in this handbook. ...
To download a complimentary copy, along with an Executive Summary, visit our website here. For more information about the services we provide financial institutions nationally, visit here.
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