Banking On It

It's been a while since I reported on the status of Sterling bank, one of our two local banks.  For the past few months, it really looked as if it were about to join the company of the 110 or so banks that have failed in 2010, its deposits to be taken over by some other bank or made good by the FDIC.  Although there was some rescue work reported, that effort seemed to have come a cropper.  Sterling's stock price continued to fall, its volume sales were erratic, the private equity firm that was apparently going to provide some of the capital it needed seemed to be joined by no one else able to make a sufficient increase in the bank's capital.

And then this week, a turnaround.  Of course, the turnaround in Sterling Financial's fortunes came at the expense of someone: in this case, its current share holders and then also the rest of us taxpayers.  Two private equity firms plus a few dozen smaller investors came up with over 700 million dollars and the bank returned to them about four billion shares of stock.  Which means that the current stock holders proportionate share of the company's value/earning was significantly lowered. 


And also, the U.S. Treasury Department had a little of the action.  Back in the grim Fall/Winter of 2008, Sterling got a bundle of money ($300 million plus) from the government which was converted to preferred shares.  This week, the agreement with the feds was to convert those preferred shares into common stock, now worth much less.  The Treasury, i.e. to say the taxpayers, took a $227 million dollar loss in this agreement. Of course, it would have been a bigger loss if the bank had failed and the FDIC had had to take on the costs of converting the bank PLUS the Treasury to lose all its investment in Sterling from the TARP program.  Sterling may well be rescued now, although it remains a penny stock, its current price around sixty cents per share.

I guess I can safely renew my check supply, though.