CapitalSource Steps Closer To Becoming Bank

CapitalSource of Chevy Chase has taken another step toward becoming a commercial bank.

CapitalSource is undergoing a transition from commercial lender and real estate investment trust to bank holding company. These days that model is seen as more stable since deposits have become a more reliable source of money than the debt markets.

The midsize lender, whose business clients include the high-end shoe retailer Jimmy Choo, said in a statement on Friday that the Federal Deposit Insurance Corporation in Washington had approved its application to convert its California-based CapitalSource Bank into a state-chartered commercial bank.

California's regulator, the Commissioner of Financial Institutions, has also approved the conversion, the company said. The final step will be getting the okay from the Federal Reserve Board for the company to change its status.

Another factor motivating CapitalSource to change its status is the ability to participate in the Treasury Department's rescue program. John K. Delaney, chief executive of CapitalSource, has told investors he would be open to taking the relatively cheap federal money, which is available to bank holding companies and thrifts.

Treasury Secretary Henry M. Paulson, Jr. said earlier this week he was considering investing in financial firms outside the traditional banking sector, as part of a broadening of the rescue efforts.

Analysts have speculated that if CapitalSource gets federal money it could use it to buy more banks.

Delaney reiterated his interest in the Treasury's program on Friday.

"Pending the remaining approvals, we filed the necessary applications at the end of October to receive funds for which CapitalSource Bank and CapitalSource Inc. may be eligible under the U.S. Treasury's TARP," Delaney said in a statement, referring to the initiative's formal name, the Troubled Asset Relief Program.

By Alejandro Lazo  |  November 14, 2008; 4:45 PM ET  | Category:  Economy Watch
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