Friday, April 03 2009
Old National Bancorp is among the first group of banks to give up money from the government’s Capital Purchase Program.
In December, Old National obtained $100 million by selling the government preferred shares of its stock. Since then, the bank has derived little benefit from the extra money, according to Bob Jones, Old National president and chief executive officer. Analysts weren’t looking more favorably on the company’s stock. And rating agencies weren’t raising their assessments, he said.
Holding onto the money longer would have forced Old National Bank to pay it back with interest.
“It became expensive to our shareholders,” Jones said.
Another concern was the public’s perception of the bank. At first, the government said it was using the money to encourage lending from sound financial institutions.
But that message got lost in the public furor over the large bonuses paid to executives at Merrill Lynch and other failed firms, Jones said.
“You really began to see all banks painted with the same brush,” Jones said. “We take pride in the 175-year history we have and didn’t want to see us associated with some of the bad behavior.”
Another consideration was the effect holding the money would have had on the pay of Old National executives, although Jones said it never really mattered. Under government rules, the bank couldn’t pay employees bonuses worth more than a third of their total yearly compensation. Jones and four other executives at Old National would have been affected.
The rules hadn’t existed when the bank first sold stock to the government. Congress passed them in February, as part of the $787 billion stimulus bill.
Since that change, several banks have talked about getting their stock back from the government. The first four to take that step took it Tuesday. Besides Old National, they were Iberiabank, of Lafayette, La.; Signature Bank of New York; and Bank of Marin Bancorp of Novato, Calif.
Jones said Old National never really needed the federal money. While many banks reported losses for 2008, Old National had a profit of $62.5 million.
Before buying back the stock, Old National had an independent firm give it a “stress test,” similar to the reviews large banks must now undergo. The test found that Old National is prepared to withstand the current economic difficulties. The government approved the repurchase, and the bank will incur no penalties.
Old National is not the only local bank reluctant to be owned in part by the federal government. This year, German American Bancorp, based in Jasper, Ind., and the Bank of Evansville declined to sell the government preferred shares of stock. Both said they wanted to avoid interference in their businesses.
Meanwhile, other banks have accepted the offer of money. Integra Bancorp, based in Evansville, has obtained $83.6 million and Fifth Third Bancorp, which as a local affiliate office, has gotten $3.45 billion.
Shares of Old National Bank closed at $11.17 Tuesday, up 81 cents from the previous close.