PlainsCapital TARP Funds

PlainsCapital Corp., the regional banking firm that announced its acquisition of First Southwest Co. last month, received $87.6 million from the U.S. Treasury Department’s financial rescue program, the company disclosed this week.

PlainsCapital was among 92 local banks receiving a share of $4.7 billion issued by Treasury. The Dallas-based company’s share was the largest share issued to 13 non-public banks. PlainsCapital Bank is the second-largest privately held bank in Texas.

The taxpayer funds will boost the bank’s capital ratio, a key indicator of financial strength. The bank reported a strong 10.6% ratio on Sept. 30, according to FDIC records. Banks with ratios of 6% or higher are considered well capitalized, according to regulators.

Under the $700 billion Troubled Asset Relief Program, Treasury has distributed $250 billion, including $172 billion into 208 banks. In exchange for the investment, Treasury receives preferred shares, warrants, and high-paying dividends.

In the recent round, Columbus, Ga.-based Synovus Financial Corp. received $968 million, the top amount. Whitney Holding Corp and Wintrust Financial Corp. each received more than $250 million.

Although the infusions of cash were designed to free the flow of credit, most banks reportedly have declined to say how they are using the money. Critics in Congress and oversight officials cite the plan’s inability to determine whether the taxpayer bailout is being used for its intended purpose.

Amid the collapse of the investment banking industry, First Southwest announced it was joining PlainsCapital on Nov. 11, making the firm eligible for federal support. While some investment banking firms like Merrill Lynch & Co. were acquired outright by banks, others, such as Goldman, Sachs & Co., converted to a commercial banking model, which allows about a third of the asset leverage.

Under the deal, First Southwest will keep its name as a broker-dealer and a financial adviser operating as a subsidiary of PlainsCapital. Total equity at the combined companies will be valued at $400 million.

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