M&I might seek federal bailout

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Sunday, October 19, 2008
— Marshall & Illsley Corp. is considering applying for the federal bank bailout program, the company told shareholders Friday.

The Milwaukee firm, the largest bank based in Wisconsin, has been burdened by problem loans tied to the troubled real estate sector, especially in Arizona.

M&I posted a profit in the third quarter, but earnings were down 62 percent from a year earlier.

In a letter to shareholders, which was filed with securities regulators, M&I said it is evaluating the possibility of applying to sell preferred stock to the government, which plans to buy equity in banks nationwide in an effort to shore up their capital positions.

M&I also hinted at the possibility of a dividend cut, a step many banks have taken.

This week, the Treasury Department announced that it will pump up to $250 billion into U.S. banks in exchange for partial ownership.

The program, one of the first concrete steps under the $700 billion financial bailout package signed into law two weeks ago, is intended to bolster bank reserves, making banks more willing to lend to businesses and consumers.

The wildly fluctuating stock market has provided the most dramatic evidence of the nation’s economic crisis, with the Dow Jones Industrial Index recently dropping about 2,000 points over one week.

But at the heart of the problems is a virtual freeze-up of credit that has threatened to paralyze economic activity.

Feeding the credit crunch, meanwhile, are bad housing loans and plummeting real estate values in some parts of the country. Those problems have beset many banks, including M&I.

M&I faces “plenty of challenges” in Arizona, but even if it didn’t, it would be smart to apply for the federal stock purchase program, said Jon Bruss, owner and chief executive officer of Fortress Partners Capital Management, a Hartland firm that invests in banks.

“Every facet of the program that I’ve been able to get my hands on and read, I have concluded that this is really a pretty good deal for banks,” said Bruss, who doesn’t hold M&I shares in any portfolios he manages.

Regarding dividends, in the letter to shareholders Friday, the company said it is “reviewing our dividend policy in light of our projected financial results to make sure that we maintain a strong capital base through this down economic cycle.”

This week, M&I declared a 32-cent-a share dividend.

“We’ve increased our dividend every year over the last 36 years, so we wouldn’t take any changes to our dividend policy lightly,” Chief Financial Officer Greg Smith said Friday.

He said applications for the federal stock purchase program are due Nov. 14, and M&I likely will have completed at least the initial phases of its evaluation by then.

Last updated: 9:59 am Monday, December 17, 2012

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