March 17, 2010 in Business

Treasury offers hand to Sterling

Federal deal could help bank stay afloat

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Sterling Financial Corp. on Tuesday announced tentative agreements with the U.S. Treasury and a potential investor that will determine whether the bank holding company remains an independent Spokane business and one of the largest financial institutions based in the Northwest.

In a complicated financial restructuring plan months in the making, the Treasury would accept a steep markdown on the $303 million that it invested in Sterling only 15 months ago.

The company would raise an additional $650 million in capital from new investment. Sterling would also repurchase $238 million in trust-preferred securities for which it is offering 20 cents per $1 face value.

Failure to complete the transactions, according to auditors, would raise doubts about Sterling’s ability to continue as a going concern.

The $650 million component of the restructuring would reduce the holdings of the present Sterling shareholders to a small fraction of the refinanced company. The Federal Deposit Insurance Corp. guarantees customer deposits by up to $250,000.

Sterling common stock closed at 77 cents Tuesday. The Treasury has set a maximum price of 20 cents on stock at the time the restructuring takes place.

Sterling Financial owns Sterling Savings Bank and Golf Savings Bank, its residential mortgage lender.

Alternatives to the proposed restructuring include the sale of the bank or some of its assets, or renewed attempts to raise equity to bring Sterling back into compliance with regulatory capital standards, which assure a bank has reserves in case of loan losses.

The bank received a cease and desist order in October from the Washington Department of Financial Institutions and FDIC, which wanted Sterling to raise at least $300 million in new capital by mid-December. The deadline was allowed to pass as officers negotiated with potential investors and developed the restructuring plan.

“We’re now getting to the point where proposals are coming in,” said Executive Vice President Dave Brukardt.

Sterling said it has entered into a nonbinding letter of intent with one investor and has received other nonbinding proposals.

Owners of the trust-preferred securities have until the end of March to respond to Sterling’s terms.

Brukardt said he is optimistic about Sterling’s future, adding that the auditors’ concerns about Sterling’s viability would probably not apply to a recapitalized company.

The Treasury offer to accept a deep discount on its investment, which would be converted into Sterling common stock, has been extended to only one other bank, Brukardt said.

The $303 million was provided under the Troubled Asset Relief Program intended to shore up bank balance sheets while they restructured loans and raised more capital. But Sterling’s loan portfolio continued to deteriorate, discouraging potential investors.

Last month, Sterling reported a $855.5 million loss for 2009.

Sterling operates 178 branches in five states and employs about 2,600, many at its headquarters in downtown Spokane, where it was founded in 1983.

Over the next quarter century, Sterling acquired more than 20 other institutions.

Five comments on this story so far. Add yours!

• 

  Orange on March 17 at 6:19 a.m.

  Add 2600 to the unemployment pool. Sterling isn’t going to make it.

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  Ninch on March 17 at 7:04 a.m.

  BS… This restructuring means that Sterling will survive and deserves to do so.

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  liarsinnews on March 17 at 7:45 a.m.

  I agree with Ninch, Sterling will survive, but I don`t think they deserve too. Maybe if former Jim West`s estate isn`t settled yet that Sterling might ask for the money back they donated to his defense fund. Sterling is another recipient of special favors given to them by the Lilac City.

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  edmitch on March 17 at 9:34 a.m.

  Thank you for adding the updates I suggested to the article that was posted last night. Too bad all of the comments added last night were deleted.

  Sterling has a market capitalization, this morning of about $33 million. That means that a stock buyer could buy the entire bank for $33 million. By forgiving most of the TARP “loan”, the taxpayers are paying $237 million to purchase a bank that could be bought on the open market for $33 million today (at 64 cents/share) but which will be permitted to raise new funding at only 20 cents/share.

  What percent of the bank will taxpayers now own and what share price are we paying?

  The trust preferred securities that Sterling is offering to buy back at 20 cents on the dollar were a complex legal scam that enabled banks (mostly) to take on debt but to list the debt as an asset and receive a better tax deal on the interest payments than if it had issued its own preferred shares. A legal way to short change the rest of the taxpayers.

  In exchange for blowing through deadlines to resolve their poor management problems, Sterling will receive more taxpayer money and a secret investor will be permitted to buy or buy in to the bank - with Sterling’s losses absorbed by the taxpayer and the private gains going to the private investor. Sterling is now a socialized bank, socializing the losses but privatizing the gains.

  Sterling gives new meaning to the term “bank robbery” as they participate in the looting and plundering of the taxpayers. The executives have not apologized for their mismanagement nor have they thanked the taxpayers for our for our generosity.

  All the taxpayers can do is take their business elsewhere to reputable banks.

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  ChefGus/ John Olsen on March 17 at 10:39 a.m.

  Or some of us have moved our local banking to solid steady and staid credit unions… you may have noticed there have not been any “failures” of Credit Unions.. and they only charge 7 percent on their Visa Cards…. I’d be takin my money out of any bank that has even a whiff of the complexities described here…

  Ever wonder why such “good banks” as River Bank have no customers in their parking lot?? does that make sense?? STCU parking is full and busy all day long where I bank. John