Local bankers plan to issue preferred stock

Chief executives of some of the nation's largest banks don't like the idea of issuing preferred stock to the Treasury Department, according to national media reports, but some Nevada bankers are ready to jump on the product like a dog on a bone.

The holding companies for Community Bank, Bank of Nevada and Nevada State Bank are interested in selling preferred shares to the federal government, in part because it will enable them to make more loans and have more flexibility in acquiring deposits and assets from other banks.

The preferred stock also will boost the capital or net worth of banks, providing a financial cushion against loan losses and weak economic conditions.

The Treasury on Tuesday announced that it would purchase $250 billion of senior preferred shares from banks and said nine of the nation's biggest banks, including Bank of America and Wells Fargo Bank, would participate.

"We intend to avail ourselves of the program," said Dale Gibbons, chief financial officer of Western Alliance Bancorporation, the holding company for Bank of Nevada.

Ed Jamison, chairman and chief executive of Community Bancorp, said his institution is interested in issuing preferred shares based on initial information about the program.

"It is something we would strongly consider," he said.

Gibbons and Jamison made their comments Friday.

Harris Simmons, chairman and chief executive of Zions Bancorporation, on Thursday told analysts that his bank holding company intends to apply and expects to be approved for between $500 million and $1.5 billion in preferred shares.

"Every bank should be applying for it," said Tim Coffey, vice president of research for FIG Partners, a brokerage specializing in bank stocks.

"Having new capital in this market is priceless," Coffey said. In addition, banks that don't issue preferred stock to the government will be at a disadvantage to competitors who did and can make more loans. "I guarantee you everybody (in banking) is looking at it."

City National Corp. of Los Angeles "will certainly take a good look at the program," spokesman Cary Walker said. But he added: "City National is quite well capitalized. We've not had any plans to raise capital."

Mark Daigle, chief executive of Colonial Bank in Nevada, said bank holding company headquarters in Alabama will consider selling preferred stock to the Treasury.

Bankers say terms of the Treasury preferred stock program are attractive. The preferred stock will pay 5 percent dividends to the government for the first five years and, if not called, then will reset at 9 percent. The government requires warrants to buy common stock at the current market price. The warrants must provide the Treasury with an opportunity to buy common stock for up to 15 percent of the preferred stock investment. The program limits executive compensation at participating banks

"I think the government is likely to make money on this program," Gibbons said.

The Treasury first of all can profit, because it can issue government securities that yield less than 5 percent. Also, he said the government may profit from exercising or selling the stock warrants.

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.