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Banking and
Financial Institutions Law Update February 26, 2009
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Banking and
Financial Institutions Team Leaders
Jean M. Weipert
Team Members
William G. Asimakis,
Jr.
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THE FINANCIAL STABILITY PLAN
CAPITAL ASSISTANCE PROGRAM
The U.S.
Treasury Department yesterday released the details of its Capital
Assistance Program ("CAP") for financial
institutions. The CAP consists of two core elements.
The first is a
one-time mandatory forward-looking capital assessment of each of the
19 U.S. banking organizations with assets in excess of $100
billion. The capital assessment exercise involves evaluating
expected losses and the resources to absorb those losses if economic
conditions were to be more adverse than generally expected. The
assessment will be conducted by federal banking and thrift
supervisors.
The second
element of the CAP is access for qualifying financial institutions
(including those whose above-described capital assessment indicates
the need for an additional capital buffer) to contingent common
equity provided by Treasury. The CAP is currently available to
publicly-traded U.S. financial institutions with eligibility
requirements consistent with the criteria and deliberative process
established for the TARP Capital Purchase Program. (Separate
term sheets are expected to be made available for participation in
CAP by qualifying privately-held banks and S corporations.)
The security
provided to eligible banking organizations under CAP will be in the
form of a preferred security that is convertible into common
equity. Notably, with supervisory approval, banking institutions
will be allowed to exchange their existing TARP preferred stock for
the new CAP convertible preferred instrument. The conversion
price for the CAP preferred is set at a 10% discount from the
prevailing level of the institution's stock price as of February 9,
2009.
Clark
Hill will strive to keep you consistently updated and informed about
the Troubled Asset Relief Program, the Financial Stability Plan, the
Capital Assistance Program and the government's evolving response to
the turmoil in our capital markets. Please click here to view our
previously distributed newsletters.
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To find out more
about Clark Hill and our Banking and Financial Institutions
Law Group, visit clarkhill.com
or call 800.949.3124
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