The board of directors of Mechanics Bank has voted to approve the bank’s participation in the US Treasury’s capital purchase programme.
Under the programme’s terms, the bank will receive $60 million of additional capital in exchange for preferred stock paying a dividend rate of 5% per annum for the first five years of the programme.
The capital purchase programme is a part of the troubled assets relief programme. It is intended to inject additional capital into the banking system to create stability during the current volatile times.
Steve Buster, CEO of Mechanics Bank, said: We are very well capitalised currently and did not need this additional capital, so we had to carefully consider whether accepting it made sense. In the end, we felt there were compelling reasons to go ahead.
The additional capital will not only ensure our ability to help our valued clients with new credit through this period of economic uncertainty, but it could come in handy if a truly excellent growth opportunity arises.
The US Treasury recently created the capital purchase programme (CPP) which is part of the troubled assets relief programme to encourage qualifying U.S. financial institutions to increase the flow of financing to businesses and consumers, thereby restoring liquidity and stability to the U.S. financial system. Companies participating in the programme must adopt the Treasury Department’s standards for executive compensation and corporate governance, for the period during which Treasury holds equity issued under this programme. These standards generally apply to the chief executive officer, chief financial officer and the next three most highly compensated executive officers. The approval is subject to certain conditions and the execution of definitive agreements.
