Sixteen U.S. banks sign up for government funds

By Jonathan Stempel

NEW YORK (Reuters) - Sixteen U.S. banks including BB&T Corp (BBT.N), Capital One Financial Corp (COF.N) and SunTrust Banks Inc (STI.N) have accepted more than $33 billion of U.S. government cash, as speculation turned to which lenders might not qualify for help.

The infusions are part of the second phase of a $250 billion recapitalization program launched this month by U.S. Treasury Secretary Henry Paulson.

Governments worldwide are trying to prop up banks whose capital has been hit by the credit crisis as part of efforts to stave off a potentially deep global economic recession.

Treasury is providing funds, in exchange for preferred stock and warrants, to a group of 20 to 22 lenders. In an earlier round of financing, the department committed $125 billion to nine of the nation's largest banks. The infusions are part of the $700 billion Troubled Asset Relief Program (TARP) that became law this month.

"Investors should look at the infusions as a positive for those that participate," said Kevin Fitzsimmons, a banking analyst at Sandler O'Neill & Partners LP. "Over the next week, we may get a better idea of who is getting approved and who may not be. Perhaps there will be more scrutiny then of lenders we haven't yet heard from."

Another industry expert said "hundreds" of small U.S. banks could receive fresh capital under the program.

Camden Fine, president of the Washington-based Independent Community Bankers of America, said small banks that receive capital would use it for Main Street lending. "Unlike the largest banks, which many times have many other sources of income, community banks are heavily dependent on lending activities for their income. So the bulk of this money going to the community banks is going to be used for lending," he said.

The government hopes banks will use funds to help unlock credit markets, rather than hoard the cash, though some are expected to use money to buy weakened rivals.

On Friday, PNC Financial Services Group Inc (PNC.N) said it would buy National City Corp NCC.N, the ailing Cleveland lender, with help from a $7.7 billion government infusion.

U.S. Rep. Barney Frank, the influential chairman of the House of Representatives Financial Services Committee, said he expects banks to lend the money they receive under the capital infusion program.

"If that doesn't happen, we will find a way to put pressure on them," Frank, a Massachusetts Democrat, said at a Boston chamber of commerce meeting.

One bank receiving government funds, Los Angeles-based City National (CYN.N), said it was self-evident that banks are going to put the money to work even though there was no "specific written agreement" with the government requiring it. "City National ... is in the business of lending money," Chief Executive Russell Goldsmith told CNBC television.

The Treasury Department is letting banks announce infusions, rather than release a list and frighten investors that banks left off the list failed to qualify for help.

HARD TO SEPARATE WINNERS/LOSERS

Bank shares initially rose on Monday, with the Standard & Poor's Financials Index .GSPF up almost 1 percent in afternoon trading before reversing gains and falling 4.1 percent by the close.