Pacific Capital Back in the Hot Seat

Pacific Capital Bank, the small California bank with big problems, has earned some national recognition this week. Granted, its not good recognition, but, well, what do you expect?

Two-time Pulitizer Prize winning reporters Jim Steele and Donald Bartlett (America: What Went Wrong) have contributed an analysis of the the TARP program for the October issue of Vanity Fair (linked).  They briefly draw on the short-sighted nature of the management of the TARP program, and then drill down to examine some of the curious follies exhibited by some of the recipients of the program.

The first bank profiled is none other than Pacific Capital. Bartlett and Steele pillory TARP’s lack of due diligence in awarding PCBC with $180.6 million in capital.  Most of their concern focuses on the degree that PCBC relies upon refund anticipation loans for its income.  They point out that

Interest earned from rals accounted for 24 percent of the banking company’s interest earnings in 2008, second only to income generated by commercial-real-estate loans.

It just can’t get much worse for Pacific Capital. Today, their shares are trading at about $2.13, down from above $25 less than one year ago.

Or maybe it can.  These problems of being lampooned nationally.  The Vanity Fair article is bringing light to some unpleasant facts:   PCBC is working in partnership with businesses that have been prosecuted for deceptive advertising.  These partnerships include  tax preparers that have in some instances been prosecuted for filing fraudulent returns.

But, it could get worse if the banks doesn’t right its ship.  Investors will direct plenty of hard feelings their way if PCBC can’t get their capital ratios up soon.  The FDIC wants them to raise their Tier One Capital Ratio to 9 percent by the end of September.  It recently studio just below 5.5 percent.  There is talk of raising equity through a new sale of stock, and a special shareholder’s meeting has been called for September 29th.