Anchor Bancorp wants to join in federal bank bailout

Mike Ivey  —  10/28/2008 3:44 pm

Madison-based Anchor Bancorp, which has seen its share price drop 80 percent this year amid the global financial meltdown, is looking to participate in the federal government bank bailout program.

Anchor said in a regulatory filing Tuesday it was considering selling preferred stock under the U.S. Treasury's bank stock purchasing program.

The program is part of the Emergency Economic Stabilization Act passed by Congress earlier this month. The bank said it needs to raise as much as $200 million in additional capital to safeguard its loans to asset ratio.

Under the bailout program, banks can borrow money from the U.S. government by issuing preferred stock, which is similar to a bond in that it pays a fixed return. Banks participating must pay 5 percent interest on the money, with the rate increasing to 9 percent if the money is not repaid after five years.

But selling preferred stock to the government does not have the dilutive effect on existing shareholders that would come from issuing new shares of common stock.

"Bottom line is that using this government program is a lot cheaper than going back into the capital markets," said Jason Werner, a regional bank analyst with Howe Barnes Hoefer & Arnett of Chicago.

Anchor Bancorp (ABCW) has been caught in a capital pinch, especially under the pressure of a nonperforming assets ratio of more than 3 percent. The lender has a loan-loss reserve of just 33 percent compared to a 144 percent industry average, according to a recent report in Barron's.

Also, the board of directors at Anchor announced Tuesday it was cutting its dividend from 10 cent a share to 1 cent a share for the second quarter of fiscal 2009 to be paid on Nov. 15.

The dividend is a 9-cent reduction from the bank's first quarter payment for fiscal 2009.

"In view of the financial challenges presented by the current economic environment, the Board felt that the most prudent course of action was to focus on maintaining our capital position versus paying out these funds in the form of dividends," said Anchor CEO Doug Timmerman.

Mike Ivey  —  10/28/2008 3:44 pm