IMPEACH BUSH

WASHINGTON -(Dow Jones)- The U.S. Treasury on Friday was set to receive a flood of last-minute applications from firms seeking government rescue funds by the Nov. 14 deadline.

The Treasury's $250 billion capital purchase program is open only to banks and thrifts. But others, including insurers and finance companies, were hoping to receive cash injections as well.

Meanwhile, many private banks, which aren't required to apply by Friday, submitted their applications anyway, for fear of being left out in the cold.

"The level of interest from businesses is very high," said Scott Talbott, senior vice president of the Financial Services Roundtable.

Since the capital purchase program was announced on Oct. 14, the American Bankers Association, the largest banking trade group, has twice written to Treasury to express its deep skepticism about whether banks would participate unless Treasury provided more clarity about the program's purpose. They also asked Treasury to push back the Nov. 14 deadline to give banks more time to mull their options.

Industry doubts about the program now seem to have faded. Back-of-the envelope estimates by the bankers group suggest that 40% of the industry is interested in the program, ABA executive Wayne Abernathy said.

"We have seen significant interest in the program," Treasury spokeswoman Jennifer Zuccarelli said.

Under the program, Treasury purchases senior preferred shares in qualifying banks. In exchange, the banks must adhere to certain caps on executive pay and restrictions on dividend payments.

Treasury has already doled out roughly $170 billion of the capital purchase funds, leaving about $80 billion for the rest of the industry, according to industry estimates. Brian Gardner, an analyst for research firm Keefe, Bruyette & Woods, said that would be more than enough to cover all the banks that want to apply.

"There's going to be money left over from the capital purchase program," he predicted.

In remarks Wednesday, Treasury Secretary Henry Paulson opened the door to allowing other companies to receive cash injections under the $700 billion Troubled Asset Relief Program, or TARP. However, he provided few details.

A number of firms were seeking to acquire bank or thrift charters to qualify for the capital purchase program. In the last week, the Office of Thrift Supervision has received inquiries from a few insurers seeking to acquire a thrift charter, OTS spokesman William Ruberry said. American Express (AXP) converted itself to a bank holding company earlier this week, and GMAC Financial Services said it would do the same.

Meanwhile, private or closely held banks are anxiously awaiting their turn to be considered for rescue funds, even as questions remain about how Treasury will shape the second stage of the program.

Treasury has already made clear that it plans on giving private banks the opportunity to apply. The Independent Community Bankers of America hopes that more than 6,000 private banks will soon have access to the rescue funds.

Robert Clarke, a senior partner with Bracewell & Giuliani's global financial services practice and a former Comptroller of the Currency, said that even though the rules of the road for private banks have yet to be laid out, about half a dozen of his community bank clients have already submitted applications to the Treasury.

"There's a tremendous amount of interest in this" among community banks, he said. "I wish they (Treasury) would go ahead and get the guidance out because there are a lot of boards and management that are stuck on hold, not knowing which way to go because they don't know what the rules of the road are going to be."

Zuccarelli said Treasury expects to release more information on the process for private banks "in coming days." She added that the funds for the private banks would come out of the $250 billion capital purchase program.

There is some concern among banks that Congress will act to place more restrictions on participants in the program. Language in the securities purchase agreement between Treasury and the banks allows the department to "unilaterally amend" any part of the agreement subject to a change in federal statute.

The concern has not damped interest in the program, however. "The deal is too good for them to pass up," Karen Petrou of Federal Financial Analytics, a bank consultancy, said. "If the terms change, they could repurchase the shares."

Questions still remain about how exactly Treasury will use the rest of its bailout program funds. Congress gave Treasury immediate access to the first half of the $700 billion for its rescue program. But now, most of that first $350 billion has already been committed.

In addition to the $250 billion set aside for the capital purchase program, Treasury on Monday announced plans to inject $40 billion into American International Group (AIG), bringing the amount of government aid received by the insurer to around $150 billion. That leaves Treasury with immediate access to $ 60 billion of TARP funds. It would have to turn to Congress for the remaining $ 350 billion.

Paulson said Wednesday he didn't have a timeline for when he'd ask Congress to tap the last $350 billion of TARP funds. He also said Treasury had backed off its original plan to buy troubled mortgage-related assets from banks' balance sheets. Instead, it's considering ways to boost the availability of student and auto loans and credit card financing.

One way would be for Treasury to invest in a Federal Reserve liquidity facility to buy securities backed by consumer loans. The consumer finance sector has come to a standstill on concerns about defaults, raising the costs of car loans, student loans and credit cards, Paulson said. In addition, Paulson outlined plans for a program to inject capital into firms outside of the banking industry through a program that could require firms to first raise private capital.

-By Maya Jackson Randall and Jessica Holzer, Dow Jones Newswires; 202-862- 9255; maya.jackson-randall@dowjones.com

(END) Dow Jones Newswires
11-14-08 1615ET
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