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Fallout: The Financial Crisis

Small bank gets in on the bailout

Marketplace Staff Dec 26, 2008


KAI RYSSDAL: The list of banks taking federal bailout money is a long one. More than 200 in all. Right up at the top are the biggies. Citigroup with $45 billion, Wells Fargo and Bank of American at $25 billion.

Scroll all the way down, though. Keep on going. There’s a bunch of them. At the very bottom you’ll find Saigon National Bank, down in Orange County, right here in Southern California. It got a relatively paltry $1.2 million. But why?

We asked Rob Schmitz from KQED to find out.

ROB SCHMITZ: The name of the cafe is the Coffee Factory, but here in the immigrant enclave of Little Saigon they call it CNN. This is where dozens of Vietnamese men gather each morning, and over cigarettes, coffee and newspapers they loudly discuss the news.

Lately they’ve been discussing the bank next door to the cafe: Saigon National. It’s a community bank whose clients are mostly local small businesses like a machine shop and a radiology clinic.

You might think that receiving government bailout money would be a stigma. Not here. Ban Nguyen is a major investor in this bank. He’s gotten pats on the back and shouts of congratulations by many who are proud that a hometown bank got a cut.

BAN NGUYEN: They read in the Vietnamese newspaper here. They sometimes call me and ask me: “Hey! How do they get to that kind of money?” We are very proud of that.

Since when is needing bailout money a source of pride? Well, “need” really isn’t the correct word. When I walked next door to ask Jack Kennedy, the CEO of Saigon National, whether he actually needed the federal money, here’s what he told me:

JACK KENNEDY: On a strictly yes or no, no. But you’re always planning ahead as a business manager.

Wait a second. Isn’t the $700 billion in bailout money meant for banks that need to be, well, bailed out? Actually, no. Saigon National’s a prime example. A key measure of the bank’s financial strength, its equity capital, is four times as high as the minimum required by regulators. Kennedy says the $700 billion isn’t so much a bailout of faltering banks but a vehicle to increase lending and stimulate the economy using banks with healthy balance sheets.

KENNEDY: I don’t think Congress intended that the money be infused into institutions who were weak. You know, a bank that’s weak in a down economy will continue to be weak, if not weaker.

And for Saigon National, taking the bailout money was good business, plain and simple. In order to grow capital, banks typically sell preferred shares that pay out interest at 7 or 8 percent. In order to get a slice of the $700 billion, Saigon National had to sell preferred shares to the government. But the government only charges 5 percent interest. Kennedy says the lower rate should allow him to make more loans.

KENNEDY: The capital infusion or addition will allow us to leverage that capital. What that really means is that, for a million and a half, we could potentially loan out another $15 million.

And that would increase Saigon National’s loan portfolio by 34 percent — not bad in these economic times. Kennedy says he’s been swamped with calls from other community banks asking for advice on getting their own share of bailout money.

KENNEDY: It probably encouraged other small banks. They said, “Well, if that bank can do it, then we can do it. We’re not going to be discriminated against because we’re small.”

And it’s the thousands of small banks around the U.S., Kennedy says, which will help pull the country out of the doldrums by putting more money in the hands of small businesses.

In Little Saigon, I’m Rob Schmitz, for Marketplace.

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