EVENT STUDY:

TARP

Group 208
Matthew Block, Allison Dmiszewicki,
Kenny Gordon, Cristina Hartoularos,
Brian Liebmann, Matthew Varvarigos
AGENDA
 Introduction
 Background Information
 Research Findings
 Our Hypothesis
 Sample - Banks
 Data
 CAR
 T-Test
 P-Value
 Regression Analysis
 Conclusion
 References
INTRODUCTION
 Motivation For Study:
A recent topic that impacted our economy
 Many unexplained parts still circulating the news
 Controversy over who received aid and who did
not
 How ratios could help explain activity
BACKGROUND
 October 13, 2008 – Troubled Asset Relief
Program (TARP) was signed into law
 Plan involved using up to $700 billion to
support financial institutions and the banking
system
RESEARCH FINDINGS
 The Participants in the TARP Capital Purchase
Program: Failing or Healthy Banks?
 Gortonand Huang(2004) and Bernardo and
Welch(2004) Theory:
 “The high uncertainty regarding the value of bank assets,
coupled with the low liquidity in financial markets, is
likely to lead to the undervaluation of financial
institutions, regardless of their financial performance.
 U.S. Treasury did not publically reveal the criteria
for capital infusion approval.
 Stephen Wilson said “the public perceived capital
infusion as a “weakness” and that was so
discouraging because nothing could be further from
the truth”
RESEARCH FINDINGS
 The Effects of TARP Preferred Stock
Issuance on Existing Preferred Stock
 VB Banks that needed and received TARP
 IVB Banks that did not need but were forced to
receive TARP
 “Morgan Stanley, Citigroup, belong to VB’s while
Goldman Sachs, and JPMorgan Chase belong to
IVB’s. Bank of America, Wells Fargo and Bank of
NY Mellon belong to banks that are difficult to be
classified as IVB’s or VB’s.”
RESEARCH FINDINGS
 3 Articles
OUR HYPOTHESIS

Is there a correlation between the

Debt and Current Ratio of a bank and
the amount of money received from
TARP?
 SAMPLE
1. POPULAR INC BPOP 1. WELLS FARGO & CO WFC 1. WEBSTER FINANCIAL CORP
2. BANK OF NEW YORK 2. PNC FINANCIAL SVCS WBS
MELLON CORP BK GROUP INC PNC 2. SUSQUEHANNA
3. JPMORGAN CHASE & CO 3. KEYCORP KEY BANCSHARES INC SUSQ
JPM 4. STATE STREET CORP STT 3. SOUTH FINANCIAL GROUP
4. CITIZENS REPUBLIC INC TSFG
5. SUNTRUST BANKS INC STI
BANCORP CRBC
6. WHITNEY HOLDING CORP
5. CITY NATIONAL CORP CYN WTNY
6. COMERICA INC CMA 4. STERLING FINANCIAL
7. WILMINGTON TRUST CORP CORP/WA STSA
7. CITIGROUP INC C WL
5. INTL BANCSHARES CORP
8. FIFTH THIRD BANCORP 8. ZIONS BANCORPORATION IBOC
FITB ZION
6. CATHAY GENERAL
9. REGIONS FINANCIAL CORP 9. ASSOCIATED BANC-CORP BANCORP CATY
RF ASBC
7. CAPITAL ONE FINANCIAL
10. TRUSTMARK CORP TRMK 10. BB&T CORP BBT CORP COF
11. M & T BANK CORP MTB 11. VALLEY NATIONAL 8. MB FINANCIAL INC/MD
12. U S BANCORP USB BANCORP VLY MBFI
13. FIRST HORIZON NATIONAL 12. SYNOVUS FINANCIAL CORP 9. WINTRUST FINANCIAL
CORP FHN SNV CORP WTFC
14. HUNTINGTON BANCSHARES 13. FULTON FINANCIAL CORP 10. FLAGSTAR BANCORP INC
HBAN FULT FBC
15. MARSHALL & ILSLEY CORP 14. TCF FINANCIAL CORP TCB 11. UMPQUA HOLDINGS CORP
MI 15. FIRST BANCORP P R FBP UMPQ
DATA: CAR
DATA: T-TEST
DATA: P-VALUE
 REGRESSION ANALYSIS
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.161236625
R Square 0.025997249
Adjusted R Square -0.016350696
Standard Error 0.114761352
Observations 49

ANOVA
df SS MS F Significance F
Regression 2 0.01617 0.008085 0.613896 0.545612
Residual 46 0.605828 0.01317
Total 48 0.621998

CoefficientsStandard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%

Upper 95.0%
Intercept -0.105171621 0.095524 -1.101 0.276624 -0.29745 0.087107 -0.29745 0.087107
X Variable 1 0.158219294 0.179633 0.880794 0.383008 -0.20336 0.519801 -0.20336 0.519801
X Variable 2 0.036858636 0.097665 0.377399 0.707613 -0.15973 0.233448 -0.15973 0.233448

CAR (0,1) = =-.10517 + 0.158219*Debt Ratio + 0.036859 * Current Ratio

CONCLUSION
 The positive market reaction to
announcements of TARP repayment intent is
consistent with the view that cost of
participating in TARP has increased for banks
since the program’s inception.
 TARP had a beneficial effect on valuations of
recipient banks by providing a source of
capital at a time when all other alternative
capital sources were essentially shut.
REFERENCES
 List Articles and Website for Sample