the town dandy / By Hank Sims

Scenes from our Beheading

(Feb. 12, 2009)  Rubbernecking the collapse of the world. The news isn’t all bad!

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WINNER! One would be Redwood Capital Bank, which joins Umpqua Bank in the ranks of local financial institutions that have opted into the big Bush bailout bill. Last month, the government of the United States of America bought a $3.8 million stake in the homegrown Eureka bank through its $700 million Troubled Assets Relief Program (TARP). That’s hardly anything, $3.8 million, in the great scheme of things. We’re talking about something like .0005 percent of the total TARP program. Umpqua, an Oregon-based chain with a big presence here, took in a much healthier $214 million.

But it’s a bit confusing, you know? Because the idea at the time seemed to be the banking system needed rescue, and both Umpqua and Redwood Capital do hardly anything but talk about how amazingly healthy they are. By the numbers, business is fairly booming at Redwood Capital — deposits increased 11 percent in the last three months of 2008, loans were up five percent. At the same time, though, the company lost $141,000 in the period.

The last figure is worrying, but it’s hardly the all-hands-on-deck kind of numbers we hear about it the national news. Redwood Capital isn’t on the verge of going belly-up, exactly — it continues to grow. Didn’t taxpayers think the money approved was supposed to save institutions from going to hell?

“For the major banks, that was the case,” said Redwood Capital CEO John Dalby on Tuesday. “When you get down to the regional banks and the small banks, you have to go through a fairly rigorous approval process, and you have to be able to weather the storm.” What the TARPmasters are looking for out of the small fry, Darby said, is a reasonable investment.

More worrying than the fourth quarter loss is the fact that the bank recently kissed goodbye to $1.4 million in sketchy loans — not because the lenders have stopped paying, Dalby said, but because there was a reasonable fear that they might do so sometime in the near future. The TARP monies provide a bit of a cushion in case the trend gets worse.

“In our case, we have sufficient capital without it, but it provides a reserve of capital in the case we see a deterioration in the local economy,” Dalby said. And like Umpqua CEO Ray Davis (see “The Big Buy-In,” Nov. 13, 2008), Dalby wished to spread the word that the taxpayer is going to get a good return out of the deal, at least as far as his bank is concerned. “We can’t pay ’em back soon enough,” he said.

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