The U.S. Treasury Department has released details on its voluntary Capital Purchase Program, under which the Treasury will purchase up to $250 billion of senior preferred shares on standardized terms as described in the program's term sheet.
The Treasury says nine large financial institutions – Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., according to published reports – already have agreed to participate in this program, and will see a total investment of approximately $125 billion of the $250 billion amount.
The program will be available to qualifying U.S.-controlled banks, savings associations, and certain bank and savings and loan holding companies engaged only in financial activities that elect to participate before 5:00 pm (EST) on Nov. 14, according to the department's statement. The Treasury will determine eligibility and allocations for interested parties after consultation with the appropriate federal banking agency.
The minimum subscription amount available to a participating institution is 1% of risk-weighted assets, and the maximum subscription amount is the lesser of $25 billion or 3% of risk-weighted assets, the Treasury says. The Treasury will fund the senior preferred shares purchased under the program by year-end 2008, and institutions interested in participating in the program should contact their primary federal regulator for specific enrollment details.
Companies participating in the program must adopt the Department of the Treasury's standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under this program.
The financial institution must meet certain standards, including: ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.
To see the statement in its entirety, go to www.treas.gov.