TCF Financial: Take This TARP And Shove It

By Eric Fox | March 09, 2009 AAA

TCF Financial (NYSE:TCB) gave notice that it is returning funds received from the government last fall as part of the Troubled Asset Relief Program (TARP), joining IberiaBank (Nasdaq:IBKC) in announcing second thoughts about having the government as a shareholder.

TCF Financial is a Minnesota-based bank holding company with $16.7 billion in assets and 448 branches in seven states in the Midwest and Western United States. The company received $361.2 million in November 2008 in return for preferred stock.

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Shove It

TCF Financial will redeem the preferred stock sometime in early April with accrued dividends. William Cooper, TCF Financial's CEO, took a parting shot at the government.

"Recent actions by the U.S. Treasury and possible congressional or regulatory restrictions/mandates changed the rules," Cooper said. "As a result, public perception views those banks that took the TARP money as having done so out of weakness and a need to survive, without distinction among TARP programs or individual bank capital adequacy. We believe participation in TARP has created a competitive disadvantage for TCF, and it is in the best interest of our shareholders to redeem these shares." (Find out more about this program in Liquidity And Toxicity: Will TARP Fix The Financial System?)

IberiaBank will redeem $90 million on March 31.

Doing Better Than Peers
TCF Financial does seem to be doing better than its peers. It earned $1.01 per share in 2008 and stated in its press release that it did not make any subprime or other risky loans. The bank also did not securitize its loan portfolio and holds all of its loans on its balance sheet. TCF Financial did show some deterioration in asset quality toward the end of 2008, and its non-performing assets as a percentage of net loans and leases reached 1.78%. This has not impacted its capital ratios significantly yet, and its total Tier 1 risk-based capital was 11.79% at the end of 2008.

Criticism of the TARP has been mounting from all quarters. Richard Davis, CEO of US Bancorp (NYSE:USB), bluntly called it a "lousy program". US Bancorp received $6.6 billion from the Treasury and just cut its dividend by 88%. Davis called the dividend cut the least dilutive way to raise capital.

Northern Trust (Nasdaq:NTRS) received $1.5 billion in TARP funds, and CEO Frederick H. Waddell recently indicated that the bank would repay the funds as soon as "prudently possible". The bank received much criticism from members of Congress after sponsoring a golf tournament.

Tired Of TARP
It seems that many banks are itching to return TARP funds to the government, as federal interference and scrutiny of bank operations continues to grow. The only thing holding back an avalanche of redemption notices from the banking sector is something that it fears more than the government – the unknown.

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