Three TARP Recipients Have Stopped Paying Dividends to the Govt.

Three small, cash-strapped banks have stopped paying the U.S. government dividends on hundreds of millions of dollars in capital infusions they received in December under the Troubled Asset Relief Program, according to Monday’s WSJ.

Pacific Capital Bancorp, a Santa Barbara, Calif., Seacoast Banking Corp. of Florida, of Stuart, Fla., and Midwest Banc Holdings Inc., of Melrose Park, Ill., have halted their TARP-related dividends, citing the banking industry’s instability and a desire to solidify their balance sheets.

From the WSJ: Treasury spokeswoman Meg Reilly said Monday that “a number of banks” that got taxpayer-funded capital under TARP are no longer paying dividends to the government.

The moves are a sign of the deepening misery for large swaths of the U.S. banking industry, suffering under bad loans and the recession…

“Here the government has given the banks money at great terms, but the fact that they can’t keep up with it is worrisome,” said Michael Shemi, an investor at New York hedge-fund firm Christofferson, Robb & Co. “It tells you of the deep problems of community and regional banks.”

Under a provision in the TARP, a bank usually can defer dividend payments for as long as six quarters, though it eventually will have to cover the entire amount, the Journal said.

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