The federal government's plan to pump capital into the U.S. economy is beginning to have direct effects in Evansville.
Both Fifth Third Bancorp and Old National Bancorp have been approved to obtain part of the $250 billion the federal government is dispersing to financial institutions. The money is meant to encourage lending.
Fifth Third, which has a large regional office in Evansville, asked the U.S. Treasury Department for $3.4 billion Sunday evening. And Old National, based in Evansville, has been approved to receive between $100 million and $160 million.
In return for the extra capital, the federal government would secure ownership of preferred shares in the two banks. Institutions that take part must also abide by restrictions on executive compensation.
Bob Jones, Old National president and chief executive officer, said bank officials haven't decided if Old National will accept the capital injection. But they have begun to mull over what uses they might put the money toward.
Among the possibilities are mergers and acquisitions. Old National is looking at buying other banks or bank branches in the Tri-state region, Jones said in a conference call with investors.
"What we are looking to do is to accelerate our strategic plan, particularly as it relates to growth in some of our existing markets," Jones said.
Another use would be to add to the bank's loan portfolio, he said.
In announcing its plan to inject capital into banks, the U.S. Treasury Department had said it wants to work with sound institutions.
"While many banks have suffered significant losses during this period of market turmoil, many others have plenty of capital to get through this period, but are not positioned to lend as widely as is necessary to support the economy," Henry Paulson, the Treasury secretary, said a week ago.
On Monday, Old National Bank said it had profits of $17 million in the third quarter of 2008, down from the $22.6 million it had seen in the same period a year ago. The decline was partly a result of the bank's setting aside about $6.8 million for losses on loans.
Fifth Third set aside $941 million during the third quarter to cover loan and lease losses, up from $139 million during the same quarter last year. Nearly all banks have had to increase such reserves in recent times as customers have increasingly defaulted on loans. The $250 billion being distributed by the Treasury is part of a $700 billion rescue package approved by Congress earlier this month. Of that, the first $125 billion went to nine large financial institutions: JPMorgan Chase & Co., Bank of America Corp. (including Merrill Lynch & Co.), Citigroup Inc., Wells Fargo & Co., Morgan Stanley, Goldman Sachs Group Inc., Bank of New York Mellon Corp. and State Street Corp.
The remaining $125 billion is being divided among smaller institutions. Beside Old National and Fifth Third banks, Regions Bank has also obtained a preliminary approval. Regions, which runs a branch on the East Side, expects to receive about $3.5 billion.
Contributing: The Associated Press