First Niagara and TARP

By many metrics TARP appears to be working - except the metric that matters most to the CRE industry right now, which is, of course, a restart of lending.

 When the government used TARP funds last year to inject capital into banks, its stated goal was to stabilize the financial system, which has become scarily close to meltdown. And oh yes, if the banks could also increase lending that would be good too. But there was never any legal club to force the banks to lend, and with a few anecdotal exceptions here and there, there is little evidence to suggest that TARP-supported banks are lending more.

 In truth even the healthiest of banks are loathe to lend in this market - valuations are a moving target, no one can really tell what an asset is worth now. The economy is very weak and property fundamentals are weakening along with them.

 So maybe we should just content ourselves with the metrics that are working for us. TARP did appear to meet its primary goal - the short-term stabilization of the financial system last fall. Consider First Niagara Financial Group, which has just announced a $300 million stock offering. Much of the proceeds will be used to repurchase $184 million in preferred stock issued to Treasury under its capital purchase program.

 Paying back TARP funds is a trend accelerating among the banking community; no one likes the restrictions that accompany this capital. (Imagine how many takers there would have been if there had been a requirement to lend.) There are fears, though  - justifiable considering the state of the economy - that banks may be acting in spite of their best interests.  That is, weak banks shunning TARP to stay clear of the new regs. But at least in First Niagara's case, TARP appears to have worked as the program expected: for Q1 it posted profit of $21.5 million, or 16 cents per diluted share - right in line with analysts expectations.