Investment

Webster Financial to receive $400M from government

Webster Financial Corp. said Friday it received preliminary approval for $400 million in capital as part of the U.S. Treasury Department's plan to directly invest in banks.

The government investment is part of a broader program to invest in banks amid the ongoing credit crisis in an effort to stabilize the financial services sector and spur lending between banks and to consumers and other businesses.

Webster Financial said the new cash will provide it with the resources to grow the bank, including possibly through acquisitions.

In return for the $400 million in capital, the government will receive senior preferred stock and warrants to purchase up to an additional $60 million in common stock.

Many banks have been hit over the past year-and-a-half by a sharp rise in mortgage defaults and a freezing of credit markets. As some financial firms collapsed in recent months, banks shied away from lending to each other and to customers for fears that losses would mount.

Late last month, Webster Financial reported a loss for the third quarter due, in part, to rising loan defaults. The bank said it lost $16.8 million, or 42 cents per share, for the three months ended Sept. 30.

Webster Financial set aside $45.5 million to cover defaulting loans during the quarter, nearly triple the $15.3 million set aside during the same quarter last year.

Despite the increased loss provision, Webster Financial was considered "well capitalized" by regulatory standards. With the additional $400 million, the bank's tier 1 capital ratio will increase to 11.1 percent from 8.7 percent.

(Published by AP - November 7, 2008)