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March 19, 2009
Honorable Timothy F. Geithner
United States Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue NW
Washington DC 20220
Dear Mr. Secretary:
I realize the challenges you are facing
today are enormous. The fact that First ULB Corp (United Labor Bank)
has applied to return the TARP funds of $4.9 million will not even
appear on the Treasury radar screen, however, I believe that it is
important for me to explain why we wish to return these funds.
When TARP was first announced, our
primary regulator suggested that as a well run and financially stable
community bank we should apply for the TARP so that we could
contribute to the economic recovery program. Our Board of Directors
considered this recommendation and agreed that we could expand our
business plan to include the new capital. We applied and received
the TARP as a privately held company with the 5% preferred stock
option that was exercised at the initial distribution. Our legal
expenses that we incurred to coordinate with Treasury’s counsel
were in excess of $36,000.00. After receiving the TARP funds it
became apparent that the regulatory burden of TARP would exceed the
value of the investment and that Treasury had applied a “one rule
fits all” for the Treasury’s management of TARP. It appears to
us that these changes of oversight were due in large part to the use
of TARP funds by larger institutions. I can assure you that United
Labor Bank is not, nor has it ever been, comparable to AIG, Bank of
America or CITI, in its risk profile, management or culture. Thus,
with the reputation risk associated with TARP and changes in
regulatory burden with potentially more stringent oversight to come,
we have decided that we can meet our strategic goals without
government assistance. However, with the TARP, we could have further
expanded our lending and community financial growth.
This experience has been very expensive
for First ULB Corp. In addition to our legal fees, we will also be
required to redeem the 5% preferred stock at a cost to the Company of
$245,000.00. As a result of this exercise we have incurred expenses
in excess of $300,000.00 with zero value. That is a substantial sum
for a community bank. This somehow seems to be counter productive to
the administrations goals.
My explanation
of this disappointing exercise is not simply to complain but to ask
you to consider the role of community banks during the much needed
regulatory reform and restructure tasks that you are faced with.
Most community banks carry the “water bucket” for
community financial stimulation. There are numerous examples of
community banks providing credit in a safe and sound manner to small
and medium enterprises whom our larger brethren could not or would
not help. Community banks are faced with essentially the same
regulatory burden as institutions that are many multiples in sizes.
I am not recommending less regulation, just the opposite; I am
recommending better regulation, more intense if necessary but
regulation that has been developed for the size and scope of the
enterprise. I am aware that a great deal of effort is being placed
on analyzing the systematic risk for large institutions. However, I
am concerned that these regulations will be applied to community
banks and they will suffer collateral damage as a result of these new
guidelines and regulations. The enterprise risk for community banks
is certainly different than regional, national or international banks
and certainly different than bank holding companies.
This seems like the perfect time as we
re-build confidence in the financial system to structure regulation
that meets the risk of the enterprise and provides adequate and
progressive supervision and regulation.
United Labor Bank will continue to be a
solid financial partner to the communities that we serve. As part of
re-building the confidence in the banking and regulatory process, we
will continue to provide credit and banking services in a safe manner
without government assistance or undue oversight.
We wish you the very best with your
difficult tasks rebuilding America’s and the world’s confidence
in our financial system.
Very truly yours,
Malcolm F. Hotchkiss
President and Chief Executive Officer
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