‘Bailout’ it’s not, Virginia bankers say

Virginia bankers cringe at the word "bailout."

Many have applied for money that the federal government began offering last fall to boost lending in frozen credit markets.

But banking officials don't want to be included with AIG Inc. and Citigroup Inc., or the automobile-manufacturing industry, as beholden to federal taxpayers for their financial prosperity.

"It all gets lumped under 'bailout,'" said Bruce T. Whitehurst, president and chief executive officer of the Virginia Bankers Association.

State bankers have mixed feelings about federal involvement in their business, which has benefited from a big boost in capital for 23 institutions with headquarters in Virginia.

The government's role in financing institutions will be the topic of tonight's Public Square, at the Richmond Times Dispatch's downtown offices.

State bankers have received more than $4.1 billion, including $3.56 billion for Capital One Financial Corp. In all, 43 of Virginia's 82 state-chartered banks have applied for the money, and 17 have accepted, according to the State Corporation Commission's Bureau of Financial Institutions.

"The remainder have either been approved and are awaiting funds, been approved and have declined the funds, awaiting approval, or have withdrawn their applications," said E. Joseph Face Jr., commissioner of the oversight agency.

The capital has been good for attracting deposits and making loans, but banking officials say they worry about the price they may pay -- both in dividends to the government and political backlash over causes of the economic free-fall that began last year.

"Clearly, the government needed to do something," Whitehurst said. "The problem is nobody really had a road map to get from here to there."

The road map last fall never envisioned the federal government becoming a 60 percent owner of General Motors Corp., as it will under a bankruptcy plan unveiled yesterday.

"It seems to me, clearly there is no uncertainty of what the outcome will be -- GM will survive," said George Hoffer, an economics professor and transportation industry expert at Virginia Commonwealth University. "The real uncertainty is how we're going to get there and the impact on others."

Hoffer said he believes the effect of a GM collapse on other businesses would be far worse than the fallout of massive government intervention to save the company with about $50 billion in taxpayer money. "Clearly, this is a proper role of government," he said.

But the final judgment is not clear in Virginia's banking industry.

Last fall, the federal government pushed banks to participate in the Capital Purchase Program, which replaced a bailout strategy initially based on buying "troubled assets," such as securities backed by bad mortgages.

The first and biggest of the Virginia companies to accept the money was Capital One, the nationally chartered banking and credit-card giant with headquarters in McLean and operations based in the Richmond area. The company took $3.56 billion from the program in November, even though the company said it did not need the money and did not use it to finance the purchase of Chevy Chase Bank last year.

In comparison, First Market Bank, based in Richmond, received almost $34 million under the program in late February. "The main thing is it has helped everybody's balance sheets," said Dave Fairchild, the bank's chief executive officer.

But that doesn't necessary mean the money has stimulated lending. The Treasury Department reported yesterday that 500 of the 600 banks participating nationally had lower average loan levels at the end of March than the previous month.

"Part of the problem before, and still, is that loan demand isn't great," Fairchild said.

Since taking the money, First Market has begun offering loans at 3.99 percent interest for buyers of new homes from builders that are bank customers. The bank had received about 15 applications through last week.

Face, at the SCC, said it's too soon "to quantify a dollar impact or to determine exactly how or if the [federal] dollars are making a difference."

However, he added that "many institutions that did not accept [federal] money still remain well-capitalized and continue to operate and help the economy."

Contact Michael Martz at (804) 649-6964 or .