CVB Financial, facing doubters, gets OK to repay TARP
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
CVB Financial Corp., an Inland Empire-based banking company that has been battling ‘short sellers’ who are incredulous about its financial health, said late Monday it got U.S. permission to repay the capital infusion received under the Treasury’s TARP program last December.
CVB, parent of Citizens Business Bank, said it would make good on its promise to use the proceeds from a stock offering in July to return $130 million in capital from the Troubled Asset Relief Program.
The bank’s shares, which closed at $8.21 on Monday before the announcement, have jumped 40% since the company sold 22.7 million shares at $5.85 each on July 21.
The rebound has confounded short sellers who have bet heavily this year that the Ontario company, with $6.4 billion in assets, would collapse under the weight of bad real estate loans. The number of shorted CVB shares -- stock borrowed and sold, in a bet that the price would fall -- hit nearly 19 million shares in mid-July, up from 12 million in mid-March.
The latest shorted total was equivalent to almost 18% of the company’s outstanding shares.
Short sellers have targeted CVB in part for its exposure to Inland Empire real estate loans, expecting credit losses to eventually wipe out its capital -- the recent fate of two of its rivals, Temecula Valley Bank of Temecula and and Vineyard Bank of Corona.
But CVB has so far defied its detractors. The firm reported earnings of $29 million in the first half of the year, down a modest 13% from a year earlier. Problem loans edged up just $3.2 million, to $51.3 million, as of June 30 compared with March 31, the bank said in its second-quarter report.
Chris Myers, CVB’s chief executive, said in a recent interview that the company was ‘really disappointed at the number of short sellers in our stock.’ He said that although investors perceived the bank to be heavily involved in Inland Empire property lending, just 22% of the firm’s total loans were in the Inland Empire. The rest were spread among Los Angeles and Orange Counties and the Central Valley, Myers said.
Some short sellers have expected the bank to renege on its pledge to repay TARP capital, and instead hold on to the cash from the stock sale to offset further loan losses.
But CVB said in its statement Monday that, with U.S. permission now granted, it ‘intends to complete the [repayment] as soon as possible.’
Myers said one reason CVB wanted to return the TARP money was to escape the business and financial restrictions that all banks have faced under the program -- including limits on stock buybacks.
The ability to repurchase shares ‘is leverage for us’ over short sellers, Myers said, because buybacks could offset pressure on the stock from further shorting.
-- Tom Petruno