Thursday, October 30, 2008
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On October 29, 2008, Stifel, Nicolaus & Company published their November 2008 edition of The Bank Investor, which discusses the need to leverage TARP Capital to generate reasonable returns.  Here is an excerpt from the Stifel report:

As we noted earlier, some institutions may use the program to facilitate M&A activity.  PNC Financial Services Group, Inc. announced a $7.7 billion participation in the program and at the same time announced the purchase of National City Corporation.  However, those institutions not employing the capital for M&A activity may find that that the investment needs to be levered significantly in order to generate a reasonable return on the preferred stock.  At the end of the second quarter of 2008, the average Tier 1 Leverage Capital ratio for all FDIC insured community institutions was roughly 9.9%.  While it may not be necessary to lever at the current industry average of roughly 10:1, institutions will likely need to grow the balance sheet significantly to achieve a healthy ROE and level of income sufficient to cover the dividend payment requirement for the preferreds.

To see all Investment Banker reports on this site, please see all posts tagged Investment Banker.

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