Treasury to auction Fidelity Financial’s preferred stock

07/09/2012 5:00 AM

07/09/2012 5:47 PM

Fidelity Bank’s holding company is one of a dozen financial holding companies whose preferred stock will be auctioned by the Treasury Department later this month.

Treasury said Monday that as part of its efforts to wind down its Capital Purchase Program, part of the Troubled Assets Relief Program, it will auction off its preferred shares in Fidelity Financial Corp., the holding company of the city’s second-largest locally based bank.

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. According to the latest information from Treasury, Fidelity has made timely dividend payments totaling $6.7 million through May 2012.

Fidelity spokesman Al Sanchez said Monday the bank couldn’t comment on the July 23 auction of its preferred stock, or whether it planned to bid on the auction to reacquire that stock.

“SEC regulations prohibit us from making any comment on this issue,” Sanchez said.

Rick LeCompte, a finance professor at Wichita State University who follows the banking industry, thinks this is a good development for Fidelity.

“They’re losing the federal government as a shareholder, so that’s a benefit,” LeCompte said. “(And) clearly it’s a positive that they are basically letting banks out of the program without any further assistance.”

What’s not clear is if the original terms by which the capital was lent by Treasury will remain in place after the auction. Under those 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.

It also is not clear how much influence the investor or investors buying the preferred stock will have on the management or ownership of Fidelity or any of the other 11 holding companies on the list.

Brad Elliott is president and CEO of the only other Wichita bank to receive a CPP investment, Equity Bank. Equity’s holding company, Equity Bancshares, paid Treasury back its $9.2 million investment nearly a year ago. He said it did so because it wanted to get ahead of other banks that might be looking to raise capital at the same time to get out from under the Treasury investment.

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