Treasury exits Central Pacific bailout investment

The U.S. Treasury is selling the remaining half of its Central Pacific Financial Corp. stock at $13.15 a share and will realize a total net loss of $63.1 million from its January 2009 bailout of Hawaii’s fourth-largest bank.

The Treasury priced its remaining 2.77 million shares in a secondary public offering Friday and said the closing is expected on or about Wednesday.

Including Friday’s transaction, the Treasury said it expects total net proceeds from the sale of its Central Pacific stock to be $71.9 million. The Treasury had provided Central Pacific with a $135 million bailout in 2009 through its Troubled Asset Relief Program, or TARP. The program was designed to provide stability to the financial market during the recession.

"TARP was designed to help banks like us that have loan problems but otherwise viable operations," Central Pacific spokes­man Wayne Kiri­hara said.

Thirteen months after the bailout, Central Pacific acquired $325 million in new capital from private equity funds in a recapitalization that has enabled the bank to turn itself around. It has now posted four straight profitable quarters. The bank ended 2011 with earnings of $36.6 million compared with losses of $251 million in 2010, $313.7 million in 2009 and $138.4 million in 2008.

"(TARP) was a key part in buying us time to raise the capital," Kiri­hara said.

In June the Treasury sold 2.85 million shares of Central Pacific, or the first half of its stock allotment, at $12.75 a share for net proceeds of $35.9 million.

Gross proceeds from the two sales were $72.7 million.

"Today’s sale is part of Treasury’s ongoing efforts to exit its remaining TARP investments and recover taxpayer dollars," the Treasury said Friday in a statement.

The Treasury said it has recovered $260 billion from TARP’s bank programs through repayments, dividends, interest and other income compared with the $245 billion initially invested.

"Each additional dollar recovered from TARP’s bank programs is an additional dollar of profit for taxpayers," the Treasury said.

Central Pacific’s stock plunged 4.4 percent, or 59 cents, to $12.95 Friday on heavy volume of 524,039 shares following the Treasury’s announcement. Central Pacific’s stock is virtually flat this year, up 0.2 percent.

The Treasury still holds warrants that give it the right to purchase an additional 79,288 shares of Central Pacific at $10 apiece. At Friday’s close, those warrants would give the Treasury a profit margin of about $250,000.

Analyst Joe Gladue, who tracks Central Pacific for Haverford, Pa.-based brokerage firm B. Riley & Co., said whether the Treasury’s investments in banks like Central Pacific was a good investment is a public policy question.

"There were a number of banks that were in Central Pacific’s situation," he said. "How would the economy have fared if a lot more banks had failed? I’m not sure."