Bailout Nation

To find a sobering example of how precarious Washington state’s relatively healthy banking sector is, one need look no further than Sterling Financial.

The Spokane-based bank, one of the state’s largest independent financial institutions, received $303 million in federal money last year, the most of any of the half dozen or so banks that have thus far cued up for a cash infusion.

The money comes from the acronym-friendly U.S. Department of Treasury’s Troubled Assets Relief Program’s Capital Purchase Program, sometimes called CPP, but better known as TARP.

For his part, Sterling Financial chairman and CEO Harold Gilkey says the federal cash will “add liquidity and inject capital into financial institutions [and] benefit the industry as a whole. One of the things this capital injection with TARP is going to provide [is] significantly fortressed balance sheets.”

Unfortunately, Gilkey later found out that the money may also be needed to stanch his own bleeding balance sheet. On Jan. 13 of this year, Sterling Financial suspended payment of its dividend. Later that same day, the bank announced that, because of worsening economic conditions, Sterling Financial would record a loss for all of 2008.

The news probably shouldn’t have been a shocker. After all, Sterling Financial had stated earlier in the year that it was facing worsening financial conditions due to bad construction and housing loans. But shareholders responded to the January bombshell by dumping the bank’s stock and pushing its share price down by about 67 percent in one week, to $2.14.

The question that continues to loom over Washington’s banking sector is: If relatively healthy banks such as Sterling Financial are facing tough times, what is the situation like for the rest of the sector this year?
   

DON'T CALL IT A BAILOUT

Aside from the spectacular implosion (and eventual acquisition) of Washington Mutual, most Northwest banks hadn’t fared too badly in 2008 compared to those in other parts of the country.

But that picture may change in 2009. Of the 83 Washington-based banks, it is not known how many applied for the federal cash. At the beginning of this year, at least 11 institutions had received nearly $830 million via the CPP (see chart). Everett-based Frontier Financial and Spokane’s AmericanWest Bancorporation have also applied to TARP for an additional combined total of about $173 million in CPP funds.

The purchase program funds represent about $250 billion of the overarching $700 billion TARP

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