The federal banking and thrift regulators today released the application form and related guidelines for the participation by eligible institutions in Treasury’s Capital Purchase Program (“CPP”), which envisions using $250 billion of the authority granted under the Emergency Economic Stabilization Act of 2008 (“EESA”). The regulators (the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision), working with Treasury, have adopted a single set of forms and procedures for eligible institutions established and operating in the United States (and not controlled by a foreign bank or company) to apply to participate in the CPP.
We highlight below the key elements of the CPP’s application form and procedures. This memorandum should be read together with our earlier memorandum, dated October 15, 2008 (the “October 15 Memo”), which highlights the features of the CPP.
An application to participate in the CPP is to be submitted to the applicant’s appropriate Federal banking agency (“FBA”). If the applicant is a bank holding company, the application should be submitted to both the applicant’s holding company supervisor and the supervisor of the largest insured depository institution controlled by the applicant.
All inquiries relating to preparation of the application should be directed to the applicant’s appropriate FBA. All applicants are required to consult with their appropriate FBA prior to submitting their applications. The deadline for submission of application is 5 pm (EST), November 14, 2008.
Secretary Paulson clarified in an accompanying statement that sufficient capital has been allocated for the CPP and that the CPP is not being implemented on a first-come, first-served basis.
The institutions that may participate (referred to in the term sheet for the program as “Qualifying Financial Institutions” or “QFIs”) are: any U.S. bank or U.S. savings association not controlled by a bank holding company or a savings and loan holding company, any U.S. bank holding company or any U.S. savings and loan holding company that engages only in activities permitted for financial holding companies under Section 4(k) of the Bank Holding Company Act, any U.S. bank or U.S. savings association controlled by such a holding company, and any U.S. bank holding company or U.S. savings and loan holding company whose U.S. depository institution subsidiaries are the subject of an application under Section 4(c)(8) of the Bank Holding Company Act.
A bank holding company, savings and loan holding company, bank or savings association controlled by a foreign bank or company cannot be a QFI.
Note that even though a financial institution may not be eligible to participate in the CPP, it may nonetheless be able to participate in other aspects of the Troubled Asset Relief Program.
Further Conditions for Participation
An applicant must receive the approval of Treasury in order to be eligible to participate in the CPP. The applicant must also agree to certain terms and conditions and make certain representations and warranties described in various agreements prepared by the Treasury, which include an investment agreement and associated documentation (to be posted soon on Treasury’s website).
If the applicant files an application with the appropriate FBA prior to the availability of the investment agreement, it must file an amended application to include updated responses to any items in the application that required prior review of the investment agreement. In the event that an applicant cannot, by November 14, 2008, take action to be in compliance with all of the terms and conditions for participation, it must provide an explanation of the condition(s) that cannot be met and the reasons for such non-compliance. This explanation must be attached to the application. Failure to agree to all terms and conditions may result in the applicant’s disqualification from the CPP.
Applicants will have 30 days from the date of notification of preliminary approval from Treasury to comply with any outstanding requirements (such as obtaining shareholder or board approval of the issuance of the securities under the CPP), including the submission of the investment agreements and related documentation.
Among the conditions to participation in the CPP is the requirement that participating institutions adopt Treasury’s standards for executive compensation and corporate governance for the periods during which Treasury holds equity issued under the CPP. These and other standards under the program have been summarized in our memorandum entitled “Treasury/IRS Issue Implementing EESA Restrictions on Executive Compensation on Institutions Participating in the Troubled Asset Relief Program.”
What Securities Qualify under the CPP
All purchases by Treasury under the CPP will occur at the highest-tier holding company in cases in which the banking organization has a bank holding company or a savings and loan holding company. In these cases, the capital eligible for purchase is cumulative perpetual preferred stock of the highest tier holding company.
In the case of an insured depository institution that is not controlled by a company, the capital eligible for purchase by Treasury is non-cumulative perpetual preferred stock of the insured depository institution.
All measurements as to the minimum and maximum amounts of securities eligible for purchase by Treasury under the CPP is to be based on information contained in the latest quarterly supervisory report filed by the applicant with its appropriate FBA, updated to reflect events materially affecting the financial condition of the applicant occurring since the filing of such report.
For a detailed discussion of the features of the senior preferred stock and warrants to be issued under the CPP, see our October 15 Memo.
The CPP application form requires basic information about the applicant, the amount of money requested from Treasury and information regarding the amount of authorized but unissued preferred stock and common stock that the applicant currently has available for purchase.
In addition, applicants are required to identify and describe any mergers, acquisitions or other capital raisings that are currently pending or are under negotiation and the expected consummation date of any such transaction.
All applications under the program have been designated as confidential proposals to review by each applicant’s FBA. Applications that are denied or withdrawn will not be disclosed. However, Treasury will provide electronic reports detailing any completed transactions within the 48 hour deadline mandated by the EESA.
Any applicant that desires confidential treatment of specific portions of the application must submit a request in writing to such effect, along with the application. The request must contain adequate justification for the requested treatment. It should specifically demonstrate the harm (including, for example, loss of competitive position, invasion of privacy) that would result from public release of information.
Information in relation to which confidential treatment is requested should be:
- specifically identified in the public portion of the application (by reference to the confidential section);
- separately bound; and
- labeled “Confidential.”
The same procedure is to be followed when requesting confidential treatment for the subsequent filing of supplemental information to the application.
An applicant is to contact its appropriate FBA for specific instructions regarding requests for confidential treatment, which will then determine whether the information will be treated as confidential and will advise the applicant of any decision to make available to the public information labeled as “Confidential.”
Please refer to the following for further information on the program:
- Announcement and term sheet: http://www.treas.gov/press/releases/hp1207.htm
- Application guidelines: http://www.treas.gov/initiatives/eesa/docs/application-guidelines.pdf
- Process-related FAQs: http://www.treas.gov/initiatives/eesa/docs/faq-cpp.pdf