Banks Weighing Other Uses for Bailout Money

"If the Treasury withholds its capital injection from banks . . . , then we could see many firms looking for partners in short order, as they would be at a competitive disadvantage against their peers," Morgan Stanley analyst Ken A. Zerbe wrote in a note to investors this week.

When the Treasury's program was announced last week, some bank executives said they didn't need the money and resented the federal intrusion. But in a number of earnings calls and interviews in recent days, several bank executives were more receptive.

The federal deal is relatively sweet in financial terms -- it requires banks to pay 5 percent interest annually on the investment over the first five years -- and some bankers said they would not pass it up.

A number of local banks are strongly considering applying for the Treasury program.

Virginia Commerce Bank, which has 26 branches and $2.2 billion in deposits, said it is looking to add $25 million to its capital base by the end of the year. In the past, the company said it was considering issuing stock to raise that capital, but the bank said yesterday that it may apply to the Treasury's program.

"Quite frankly, it is a very attractively priced alternative," chief executive Peter A. Converse told analysts.

In reporting third-quarter earnings, Virginia Commerce disclosed yesterday that profit fell 60.9 percent, to $2.7 million (10 cents per share). The bank said it had to put away vast more money to cover losses on its loans -- especially land-development and construction loans. Its provision was $8.3 million, compared with $910,000 a year ago.

Eagle Bank, a Bethesda firm with 15 branches and $1.5 billion in deposits, said it was leaning toward applying to the Treasury program even though executives said the bank was in strong financial shape. Eagle chief executive Ronald Paul said raising private capital was extraordinarily difficult because of the market turmoil.

Cardinal Bank, a McLean-based bank with 25 branches and $1.73 billion in assets, similarly said that it doesn't need the government's help. But chief executive Bernard Clineburg said his bank may still ask for it.

"It'll be more of a political need than the need for capital," he said. "Is there going to be a perceived government stamp of approval?"

Some larger banks elsewhere in the country also see the attraction.

"We do view the . . . program as the cheapest source of capital by some margin out there at the moment and we do expect to apply," Doyle Arnold, chief financial officer of Zions Bancorporation, told analysts this week. "The additional capital . . . would allow us to increase loan growth somewhat."

His bank is eligible for $500 million to $1.5 billion under the program.

He added that the money could be used to "take advantage of what we would expect will be some acquisition opportunities."

Similarly, BB&T's chief executive, John Allison, said his Winston-Salem, N.C., bank would probably take the government money.

"It's going to be difficult not to participate," he said. "One, the regulators are certainly encouraging us to. Second, it does have some favorable capital costs as we understand it today. Thirdly, our competitors will be taking advantage of the program and then, finally, it just provides us a potential for capital for acquisitions if those are realized."

Staff writer Neil Irwin contributed to this report.