Treasury’s preferred stock in Fidelity goes to auction

Shares of the U.S. Treasury Department’s preferred stock in the holding company of Fidelity Bank and 11 other bank companies went to auction today.

The auction is part of Treasury’s plan to wind down the preferred stock and subordinated debt positions it owns from the Capital Purchase Program, part of the Troubled Asset Relief Program.

Fidelity Financial, which has $1.5 billion in assets, received a $36.3 million investment from the Treasury in December 2008. In return for the investment, Fidelity gave up preferred stock in the company, which it could regain once it paid back the investment plus interest.

Treasury is winding down the program sooner than expected. Under earlier terms with Treasury, banks receiving CPP capital had five years to repay the investment amount plus 5 percent interest. If banks take more than five years to pay off the CPP investment, the interest rate moves up to 9 percent. The intent behind the CPP was to help unfreeze capital and spur healthy banks to lend money in the midst of a deep recession – and following the worst banking crisis in the U.S. in more than a decade.

Treasury said the auction will close at 6:30 p.m. Eastern on Thursday.