U.S. Treasury Posts Losses on TARP Auctions

--Treasury holds first auctions for banks that have missed dividend payments

--After the latest auction, Treasury holds shares and debt in 199 banks

--Treasury invested in the banks during the financial crisis

WASHINGTON--The U.S. Treasury for the first time auctioned holdings in U.S. banks that had missed a series of dividend payments, allowing the government to close out financial-crisis era investments only at steep discounts.

The Treasury on Wednesday said it would receive $191.3 million in proceeds from the sale of preferred stock and debt it holds in 11 banks that received aid under the Troubled Asset Relief Program, compared with an original investment of about $285.3 million.

Treasury also received $18.2 million in dividends and interest from the 11 institutions.

Seven of those banks, though, are behind on the quarterly payments that they are obligated to make under TARP's terms. Treasury saw the steepest discounts on those institutions--ranging from 19% to 46%.

Treasury had been expecting the losses. Indeed, the final bids came in on average more than 20% above minimum prices set for the auction, a Treasury official said.

Treasury is rapidly winding down TARP bank programs, though it still holds shares in 199 banks--many are smaller institutions with shaky finances.

But the government already has posted large profits on the bank programs--about $23 billion--and the latest losses are relatively small. So Treasury plans to forge ahead with sales.

"These auctions are continuing to help community banks replace temporary government support with private capital as we wind down TARP," said Assistant Secretary for Financial Stability Tim Massad.

Among the latest auctions was Citizens Bancshares Co., of Chillicothe, Mo., which has missed a dozen payments and owes about $4.1 million in unpaid dividends.

Treasury invested almost $25 million in the bank, but received only about $13.5 million in proceeds from its sale of preferred stock.

Citizens' Chief Executive Roger Arwood declined to comment on the auction or the bank's involvement in TARP.

Treasury also priced auctions for the following banks:

--Alliance Financial Services Inc. (Saint Paul, Minn.)

--Biscayne Bancshares Inc. (Coconut Grove, Fla.)

--Coastal Banking Co. (Beaufort, S.C.)

--Colony Bankcorp Inc. (CBAN) (Fitzgerald, Ga.)

--Delmar Bancorp (DBCP) (Salisbury, Md.)

--Dickinson Financial Corp. II (Kansas City, Mo.)

--F&M Bancshares Inc. (Trezevant, Tenn.)

--First Priority Financial Corp. (Malvern, Pa.)

--HMN Financial Inc. (HMNF) (Rochester, Minn.)

--Waukesha Bankshares Inc. (Waukesha, Wis.)

The auctions are expected to close Feb. 7 and Feb. 8, the Treasury said.

Write to Jeffrey Sparshott at [e-mail]

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