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The big banks got Uncle Sam off their backs fairly quickly. It's taken a bit longer for smaller institutions, including Cathay General Bancorp in L.A.'s Chinatown.
After nearly five years, Cathay General has retired its debt to taxpayers for the capital it was provided to boost its strength during the financial crisis.
The parent of Cathay Bank received $258 million from the government in December 2008 in return for dividend-paying preferred stock. It repaid half the debt, $129 million, six months ago.
Cathay announced late Monday that it had come up with the remaining $129 million to finish buying back the preferred shares from the Treasury Department -- and just in time. The annual dividend on the stock had been scheduled to increase from 5% to 9% in December.
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"This redemption marks a key milestone in our progress," Dunson K. Cheng, Cathay's chairman and chief executive, said in a statement announcing the repayment.
Cheng said he was pleased the bank had repaid the money out of retained earnings and had not had to raise new capital from investors since 2010.
The announcement was made after stock markets closed. Cathay shares had risen 24 cents, or 1%, to $23.37 on the day. The shares have risen more than 35% over the last 12 months, more than twice the gain of the Standard & Poor's 500 index during the same period.
Cathay's Treasury funds were part of $245 billion doled out to 707 banks during the financial crisis by the Troubled Asset Relief Program, or TARP, mainly through purchases of dividend-paying stock in the institutions.
Giants like Wells Fargo & Co., Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. raised new capital and retired their TARP debts by the end of 2009. As of Aug. 31, the Treasury was out ahead on its bank support programs, having been repaid $273 billion counting dividends, interest and other income.
But at the end of August, 119 institutions still owed money to Uncle Sam. Of those, Cathay's $129 million in remaining debt was the third largest after two San Juan, Puerto Rico, banks: Popular Inc. ($935 million) and First BanCorp ($254.3 million).
Heng Chen, Cathay's chief financial officer, said in an interview that repaying the debt means it can offer employees higher incentive pay than allowed under TARP, which limited such compensation to 50% of a worker's base salary.
"That will give us more flexibility in hiring senior officers," Chen said. "If they perform, they can earn bonuses of more than 50%."
Other Southern California regional banks that have repaid their TARP funds include City National Corp. in March 2010 and East West Bancorp in December 2010.