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Is The FDIC Broke And Covering It Up?
I have to wonder.
First, we have Corus, which reported a negative Tier 1 Ratio. That is, they are formally "in the hole" in terms of assets .vs. liabilities. This is never supposed to happen - but it did, "Prompt Corrective Action" be damned.
Next, we have Guaranty Bank, which also has a negative core capital ratio. They have been trying to sell themselves (gee, I wonder why?) for a while without success. Here's the relevant quote from their 8-K:
Based on these adjustments, the Bank’s core capital ratio stood at negative 5.78% as of March 31, 2009. The Bank’s total risk based capital ratio as of March 31, 2009 stood at negative 5.52%. Both of these ratios result in the Bank being considered critically under-capitalized under regulatory prompt corrective action standards.
Yet Prompt Corrective Action (PCA) - a law, by the way, not a suggestion - has once again not been followed.
Finally, we have Colonial. I made a nice chunk of coin shorting and PUTting that turkey last year, when their CEO (and a lot of other people) said they were "very conservative." Uh huh. My read of their balance sheet said they were (like many other regional banks) massively over-exposed to condo construction loans in..... you guessed it.... Florida (which incidentally is what killed Corus.) Oops. But here's the money quote on Colonial:
If the FDIC were to seize Colonial, it would be the sixth-largest seizure, by assets, in American history. Such a large failure could strain the bank safety net. Colonial has $20 billion in deposits, while the FDIC insurance fund has dropped below $15 billion. The FDIC wouldn't have to cover every dime, but when Florida's BankUnited, with $12.8 billion in assets, failed earlier this year, it cost regulators nearly $5 billion.
Add all three of these up and tell me what you think is going on?
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Corus Bankshares losses widen; FDIC intervention possible
August 1, 2009
Corus Bankshares Inc., whose outside auditor has already warned of its possible failure, said Friday that it is "critically undercapitalized" after reporting a preliminary loss of $487.3 million, or $9.07 a share, in the second quarter.
Such low levels of capital often result in a bank being placed into conservatorship or receivership -- which essentially marks an institution's failure and seizure by the Federal Deposit Insurance Corp.
The Chicago-based lender, which has bet heavily on condominium development in Sun Belt states, reported negative capital of $157 million as of June 30 and it's "highly unlikely" it'll be able to raise capital without the FDIC's help, Corus said in a Securities and Exchange Commission filing, which details its worsening financial shape.
Corus said it also continues to consult with regulators about proposals to line up "outside capital and/or liquidate the bank's assets."
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Big Texas bank on verge of failure
July 31, 2009
Guaranty Bank, which counts Carl Icahn as one if its backers, is teetering on the edge of insolvency. But it may not be easy for regulators to find a buyer.
NEW YORK (Fortune) -- Guaranty Bank is hardly a household name. But the Austin, Texas-based thrift's looming failure is shaping up as a big headache for bank supervisors -- not to mention a black eye for Carl Icahn and others in the smart money set.
Guaranty (GFG) could be soon seized by the government in what would be the biggest bank failure in a year that has already had 64 of them. Last week, the bank warned investors to expect a federal takeover after regulators forced a writedown of its risky mortgage investments and a bid to raise new capital failed.
Guaranty has $13.4 billion in assets and operates 160 branches in Texas and California -- two of the three best banking markets in the nation, thanks to their size and population growth.
But the bank's capital problems and its smallish, scattered network of branches could detract from Guaranty's appeal, making it tough for regulators to find a buyer quickly -- or without substantial federal subsidies.
"This may not be closed as quickly as you think, since it will require bids and rebids," said Miami banking consultant Ken Thomas.
That means resolving Guaranty's failure is likely to be costly to the FDIC's deposit insurance fund, whose balance is at its lowest point in almost two decades.
The Federal Deposit Insurance Corp. isn't the only one taking its lumps. So have some big investors.
Troubles deepen for Colonial Bank
August 01, 2009
Colonial BancGroup warned Friday that "there is substantial doubt about Colonial's ability to continue as a going concern," as a deal to raise more money to cover loan losses fell apart. Bank officials said they were trying to sell all or part of the bank or seek new investors, setting up a 60-day race to raise $1 billion to satisfy regulator demands for more capital.
The Federal Deposit Insurance Corp. and the Alabama state Banking Department have set a Sept. 30 deadline for the Montgomery-based bank to raise the money. Without it, regulators could force a sale on their terms or seize the bank.
Colonial has 7.54 percent of deposits in Mobile and Baldwin counties, about $640.7 million, according to federal data.
For now, the bank is operating normally. A failure would probably have little effect on individual depositors — all would be protected up to $250,000, and certain commercial accounts have unlimited insurance. But it would extinguish the second-largest bank based in Alabama and could cost the federal government billions.
Colonial said it lost $606 million in the third quarter, 3.6 times worse than the already steep loss of $168 million in the first quarter.
The Montgomery-based parent of Colonial Bank has lost $1.67 billion over the last five quarters.