Monday, January 25, 2010

Regulators Take Untroubled Bank From Its Owners

The federal Office of Thrift Supervision (OTS) closed family-owned Charter Bank in New Mexico on Friday afternoon and handed it to the Federal Deposit Insurance Corporation (FDIC), which gave it to Beal Financial Corporation of Plano, Texas. The FDIC said all bank branches would reopen on Monday under Beal's ownership.

The closure was a surprise because the bank was not having problems, except with its regulators.

Last fall, Office of Thrift Supervision examiners, responding to the national collapse of real estate development, ordered Charter to increase its allowance for loan losses from $10.8 million to $55.4 million, even though Charter had no delinquent commercial construction loans and only .34 percent of the loans in its commercial real estate portfolio were behind on their payments. That order reduced the level of capital Charter had on its books.
Then, last Wednesday, "OTS ordered Charter to find new capital as a buffer against insolvency or face closure." That order was followed by OTS' closing the bank just two days later.

Let's look at those figures again. This bank, which the regulators said was so troubled it had to be closed, had no delinquent commercial construction loans and just .34 percent — one third of one percent of its commercial real estate loans that were behind in their payments. That's a record I suspect very few banks in the country could match.

"This was not indicative of any instability on the part of the bank," New Mexico State Regulation and Licensing Secretary Kelly O'Donnell said Friday.

In an interview Saturday, Charter Bank President Glenn Wertheim said politics played a role in his bank's death. He noted that the AIG unit considered to have been the "linchpin" in the financial system collapse in September of 2008 was regulated by OTS, which ended up with much of the blame for the collapse. As a result, "OTS found itself fighting for its life as politicians called for its abolition or merger into other regulatory bodies." As a result, they "had a shift in examination standards", which subsequently resulted in Charter's untroubled loans being reclassified as toxic.

Charter's management, led since 2001 by bank President Glenn Wertheim, insisted that loans, mostly commercial real estate loans — which OTS said were troubled — were, in fact, being paid on time. OTS disagreed and ordered tens of millions of dollars of those loans to be classified as toxic.

That classification, recorded as an entry on the bank's balance sheet, on paper lowered Charter's capital (money regulators require banks to make sure their deposits are safe) to levels well below those regulators regard as sound, even though virtually all of Charter's commercial real estate borrowers continued to pay their bills on time.

Charter Bank specialized in mortgage loans designed to help first-time home buyers get affordable mortgages, even though they could have made more money offering other types of loans. Many of its loans were made in cooperation with Mortgage Finance Authority (MFA), established by the New Mexico legislature to help finance low-income home construction. According to MFA executive director Jay Czar, Charter Bank services "about 95 percent of the mortgages issued through the agency." It is unclear how the Charter Bank closure may affect MFA programs.
— Subscription to the Albuquerque Journal is apparently required for access to most of its news articles.


Anonymous said...

I am sorry but your bank is not the only one:


" Bakersfield and Kern County have lost an excellent institution: San Joaquin Bank. As a community, we are left with numerous questions about this closure. The main question: ‘How could this happen?’

Shutting down a successful local business bank does not strike me as being in our community's best interest. It is all the more puzzling because the bank, in a heroic effort, raised the capital needed to meet the FDIC's formula for liquidity."

" Elation over the last-minute rescue of San Joaquin Bank halted with the ring of a cell phone at 3:11 p.m. on Oct. 16... Even among those closest to the situation, the decision to shut down the bank came as something of a surprise. They had been told that the banking commissioner had extended a deadline that officially passed the night before, on Oct. 15, and that if the $27 million goal could be met by the end of the next business day, San Joaquin would be spared... New investments topped the $27 million mark that Friday afternoon.”

“ San Joaquin Bank's failure is especially disappointing in light of suggestions that it need not have happened. The bank was said to have secured the $27 million in capital that regulators demanded it nail down in order the stave off closure, only to face the axe anyway.”


Anonymous said...


First Bank of Idaho had a June 30, 2009 deadline to raise its capital level but on April 24 OTS appointed FDIC as the receiver. On the same day FDIC seized the bank and sold it to U.S. Bancorp. Apparently FDIC had already found a buyer in secret just like it did with Wamu, therefore ignoring the deadline and the quick transaction. On May 4 a bank board member Nancy Schauer argued against this action as being the least cost solution for FDIC and on May 9 Idaho state lawmakers demanded answers to such broken promises and reckless actions.

April 24, 2009
"First Bank of Idaho in Ketchum was closed by the Office of Thrift Supervision. The Federal Deposit Insurance Corp. was named receiver... U.S. Bancorp... [assumes] First Bank of Idaho's deposits, excluding $112.8 million in brokered deposits. U.S. Bank agreed to buy $17.8 million of the failed bank's assets, or less than 4 percent."

May 4, 2009
"'The FDIC says they will lose $191 million because of what has happened but if they'd waited a few weeks it never had to happen, ' said Schauer... Now the losses are incalculable."

May 9, 2009
"U.S. Reps. Mike Simpson and Walt Minnick sent letters Friday to the heads of the Federal Deposit Insurance Corp. and the Office of Thrift Supervision, asking for information about the decision to close the First Bank of Idaho... OTS gave the bank until June 30 to raise $10 million and bring its capital level to 12 percent. But regulators moved to shut down the bank before that June deadline, shocking bank executives who contend they had investors lined up to give the bank a cash infusion and clear millions in bad loans... On April 24, the OTS appointed the FDIC receiver of the bank, and more than 60 FDIC officials seized it. US Bank officials moved in that same day."


Anonymous said...


Nine banks, part of FBOP Corp, were seized and sold to U.S. Bancorp. Unlike most other troubled financial institutions, the banking operation failed not because of poor and reckless management but primarily because of its investments in FNM and FRE. Due to rule changes it was no longer eligible for the TARP assistance originally promised. Its plan to re-capitalize itself with private funding was not accepted. The least cost solution for the FDIC at the time of seizure was probably sharing the $2.5 billion loss, but we would never know the "real least cost solution" if FBOP got more time or its re-capitalization proposal was accepted.

"The largest privately held banking group in the nation, the best community bank operation around, had been taken over... FBOP Corp. was felled by its investments in quasi-governmental Fannie Mae and Freddie Mac. The common banking industry practice of investing short-term assets, 30- or 60-day money in Fannie and Freddie, lost FBOP the majority of its capital base virtually overnight and allowed the government to claim the bank was seriously undercapitalized...

And why wouldn't the FDIC give the bank the extra week they requested to raise the funds... Why are taxpayer needs better served by putting us potentially on the hook for $2.5 billon, rather than by giving the bank another week?"

"Michael Kelly says bank holding company had been promised TARP funds, but rule change left it scrambling to raise private investments... FBOP was working with private investors to invest up to $750 million of new capital into the banks... we submitted a proposal to the regulators, but it has not been approved. Regulators picked U.S. Bancorp to take over FBOP's banks."

"Park National Bank didn't fail. It was ambushed... Park National Bank - days from closing on the $600 million in private capital that the FDIC demanded be raised - is dead. Simultaneously, the FDIC is handing over to another bank a reported $2.5 billion to take on Park National's assets."

"When Bad Banks Sink Good Ones... The Federal Deposit Insurance Corp. is allowed under a 1989 law to assess the costs of disposing of a failed bank that is part of a holding company to other banks with the same owner. The agency has used the mechanism just six times."