Provident Bankshares gets $151 million in U.S. aid

Move is part of government's $700 billion recovery program

November 18, 2008|By Eileen Ambrose | Eileen Ambrose,eileen.ambrose@baltsun.com

Provident Bankshares Corp. announced yesterday that it received $151 million from a federal program designed to spur lending.

Maryland's largest independent bank received the maximum amount an institution of its size is allowed under the voluntary program. In exchange for the cash, Provident sold senior preferred shares and warrants to purchase common stock to the U.S. Treasury.

"It's an endorsement, in effect, that the Treasury and regulators see that Provident is ... strong enough to warrant the investment," said Bert Ely, a banking analyst in Virginia.

As part of the government's $700 billion Troubled Assets Relief Program created last month, $250 billion was set aside to inject cash into banks in exchange for shares. The hope is banks will use the money to lend to businesses and consumers.

Provident has 142 branches in Maryland, Virginia and southern Pennsylvania. Financial institutions such as Bank of America, Wells Fargo and Citigroup have also received money. Publicly traded banks had until Friday to apply for the program.

Chairman and chief executive Gary N. Geisel said the cash infusion will reduce Provident's borrowing costs in the short term and increase its lending.

"In an environment where capital is king, this is really attractive terms and conditions for capital," he added.

Under the terms, the preferred shares will pay a 5 percent annual dividend to the government for the first five years and 9 percent after that. Provident also has the option of buying the shares back from the government after three years.

Baltimore-based Provident has $6.4 billion in assets and recently reported a $5.4 million loss in the third quarter, largely because of a decline in the value of its investment portfolio.

Provident's stock fell 31 cents yesterday to close at $8.68 a share.

Some other Baltimore-area banks aren't saying whether they have applied for the federal money.

Last month, First Mariner Bancorp's top executive told The Baltimore Sun that the lender would "vigorously" go after the federal dollars. Yesterday, spokesman Renee Anderson would not say whether First Mariner had applied.

"We at this point don't have any information to give you," she said.

BCSB Bancorp, parent of Baltimore County Savings Bank, also won't disclose whether it applied. "Capital is pretty dear at this point of time," conceded Joseph J. Bouffard, president and chief executive.

Banks could have a variety of reasons for keeping mum, said bank analyst Ely. Some don't need the cash infusion but don't want to say so when regulators are encouraging lenders to take it, he said. Others might have been turned down by the government. And some might have applied but haven't made up their minds whether to take the money, he said.

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