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[quote="Star Ledger"]N.J. banks may return federal aid as economic conditions change
by Lisa Fleisher and Danny Teigman/The Star-Ledger 
Monday April 06, 2009, 5:45 AM

Several New Jersey banks are thinking of returning federal funds, saying thanks, but no thanks, to millions they've received over the past few months.

One dollar bills as they are printed and prepared for distribution to financial institutions.
At least one bank has gotten the green light from the U.S. Treasury Department to return Troubled Asset Relief Program money, and more may be sending checks back soon. The New Jersey banks are following other small community banks around the nation that last week said they would return funds, and experts say the trickle could become a waterfall.

Bank presidents say there's a slew of reasons for returning the TARP money. Congress has changed rules, capping executive pay. The borrowed money, which has a relatively high interest rate, has become less necessary as accounting rules have changed. And the public has demonized banks that have received funds.

"The badge of honor has become a scarlet letter," said Mortimer J. O'Shea, president of Hilltop Community Bank in Summit.

What started out as a welcome program that was supposed to help spark lending by solid banks and strengthen others has now become a dirty word. Customers ask incredulously whether banks took TARP funds, while banks are left scrambling to defend their reputations.

"The public at large doesn't remember that it was intended for healthy, vibrant banks," said O'Shea, though he noted his bank is not returning the $4 million it received -- yet.

Others are just throwing in the towel.

Sun National Bank of Vineland said last week it would repay $89.3 million to the Treasury Department by Wednesday, citing fluctuating Treasury rules. In February, the Obama administration said it would cap salaries of top executives at banks that received TARP funds and ban cash bonuses and so-called golden parachutes.

New Jersey bank presidents said they were urged at first to do their "patriotic duty" and take the money. Fourteen banks received almost $600 million from the program.

"The view that we had -- and many other banks had -- was that it was good for us, it was good for the country," said Stewart McClure, president and CEO of Somerset Hills Bank in Bernardsville.

Several lenders, like Valley National Bank of Wayne, have not returned the money, but say they may do so in the next three months. Gerry Lipkin, Valley's chairman and CEO, criticized the government for changing the conditions set on banks receiving TARP funds.

"When you come out with a program on day one, you have to come out with rules and regulations and stick with them," he said.

Bank presidents and finance experts say politicians have created a stigma surrounding banks that received federal money.

"Congress has made the TARP funds a complete political football," said Thomas Alexander, chairman of the banking and finance department in Northwood University in Midland, Mich. He said he expected more banks to give back funds.

Besides, the money's not cheap. Banks must pay the government 5 percent interest -- which is much more expensive than other funds available on the market. Recently revised accounting rules also eased the need for banks to hold onto as much cash as before.

With all the government programs out there -- bailouts, stimulus funds, mortgage-modification programs -- the public understandably has become confused and can't differentiate between the programs and their aims, bank presidents said.

Similarly, it's tough for some to distinguish among the types of financial institutions -- investment banks, mortgage companies, small community banks and large international ones -- especially when politicians lump them all together under the word "bank" when delivering fiery rhetoric on Capitol Hill, said Paul Van Ostenbridge, president and CEO of Stewardship Financial Corp. in Midland Park.

Van Ostenbridge said his bank, for now, would sit comfortably on the money.

"We were strong to begin with, but definitely, with what we see going on in the economy, we still feel this is still a wise business decision," said Van Ostenbridge, whose bank received $10 million in January. "So we're going to stay with it for now."

Banks need to ask the government to pay back the funds.

At this point, few of the more than 500 banks offered TARP funding have announced any plans for early repayment, and many are still looking to apply for funds, according to the Treasury Department.

"We're pleased with the success of this voluntary program, which has helped bank lending remain resilient in the face of a severe economic downturn," Treasury spokesman Andrew Williams wrote in an e-mail Friday.

A rush to give back the money could damage banks that really need it -- but just don't want to be the only ones keeping it, said Tanya Azarchs, a Standard & Poors bank rating analyst.

"It's going to be interesting to see what happens next," she said.

http://www.nj.com/news/index.ssf/2009/04/as_economic_conditions_change.html[/quote]

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