4 Banks Collapse Bringing 2010 Total To 20, OneWest Makes Billions On Failed Bank Purchases

Banking Failures in Texas, California, Illinois and Florida Bring 2010 Total To 20

Regulators continued their ritual of Friday night bank closings, shuttering 4 more banks across the country.   The four failed banks had total assets of $4.2 billion and total deposits of $3.4 billion.  The cost to the FDIC Deposit Insurance Fund (DIF) for this week’s bank failures  is estimated at $1.1 billion.   The cost to the FDIC Deposit Insurance Fund (DIF) for the 20 banking failures to date in 2010 now totals $4.3 billion.  Three of this week’s bank failures were relatively small.  The largest banking failure was La Jolla Bank of California with $3.6 billion in assets and $882 million in losses for the FDIC.

Marco Community Bank, Marco Island, FL – Banking Failure Number 17

The FDIC, as receiver, entered into a purchase and assumption agreement with Mutual of Omaha Bank, Omaha, Nebraska, to acquire the assets and deposits of Marco Bank.   As has been the case with almost all recent banking failures, the acquiring bank entered into a loss-share transaction with the FDIC which will limit potential losses for the purchaser on the acquired loan portfolio of the failed bank.  Mutual of Omaha paid a premium of 1.5% on the assumed deposits of Marco Bank.

Marco Bank is the third banking failure in Florida this year and at the time of closing had $120 million in assets and $117 million in deposits.  The cost to the FDIC on Marco Bank is estimated at $38.1 million.

La Coste National Bank, La Coste, Texax – Banking Failure Number 18

La Coste was purchased by the Community National Bank, Hondo, Texas.  All of the deposits and essentially all of the assets of the failed bank were assumed by Community National.  At the time of closing La Coste had $54 million in assets and $49 million in deposits.   The cost to the FDIC is estimated at $3.7 million.   La Coste is the first banking failure in Texas this year.

George Washington Savings Bank, Orland Park, Illinois – Banking Failure Number 19

The FDIC, as receiver, entered into a purchase and assumption agreement with FirstMerit Bank, N.A., Akron, Ohio to acquire the assets and deposits of George Washington Bank.  At the time of closing, George Washington had $413 million in assets and $397 million in deposits.   The FDIC entered into a loss-share agreement on $324 million of the acquired assets to limit future potential losses to FirstMerit Bank.  The loss to the FDIC on closing George Washington Bank is estimated at $141.4 million.

George Washington Bank is the second bank to fail in Illinois this year.

La Jolla Bank, FSB, La Jolla, California – Banking Failure Number 20

The FDIC, as receiver, entered into a purchase and assumption agreement with OneWest Bank to assume the deposits and purchase essentially all of the assets of failed La Jolla Bank.  La Jolla was a 10 branch bank and at the time of closing had $3.6 billion in assets and $2.8 billion in deposits.   The FDIC entered into a loss-share transaction with OneWest on $3.3 billion of the purchased assets to limit future losses to OneWest on the purchased loan portfolio.  OneWest did not pay a premium to the FDIC for La Jolla’s deposits.

The estimated loss to the FDIC (taxpayers) on the closing of La Jolla Bank is estimated at $882 million.  La Jolla is the second bank failure in California this year.

Purchasers of Failed Banks Reap $$Billions In Profits

OneWest Bank, FSB, is the fastest growing bank in the country since being newly formed in early 2009 by a group of private Wall Street investors for the express purpose of acquiring failed banks from the FDIC.   OneWest’s first acquisition was done on March 19, 2009, when it acquired the $32 billion asset Indy Mac Bank which had failed in July 2008.   In December 2009, OneWest acquired another large failed bank, First Federal Bank of Los Angeles, which had $6.1 billion in assets at the time of closing.  With this week’s acquisition of La Jolla Bank, One West is now a banking empire with over $40 billion in assets acquired from the FDIC.

The FDIC has been heavily criticized lately by those who question whether OneWest got too good of a deal on its purchase of failed banks.  Indy Mac was the most costly banking failure in U.S. history at $10.7 billion and the FDIC could still face billions more in losses under its loss-share transactions with OneWest.  The question of whether OneWest received a windfall at taxpayer expense became even more relevant this week when OneWest reported huge profits of $1.6 billion last year.

The private investors who formed OneWest had initially contributed only $1.55 billion.  Bert Ely, a well respected banking consultant remarked that “This is one hell of a deal for those owners, but hardly a good deal for the banking industry, which pays the FDIC’s bills.  These are just incredibly sweet numbers..The public policy question is, why are they so good?  Particularly given the magnitude of the loss estimated at the FDIC.”

The FDIC has been extremely sensitive to criticism on this matter and put out a press release defending its actions, noting that the FDIC has yet to pay a penny to OneWest on its loss-share agreements.  The FDIC has been swamped with banking failures over the past two years and at times has had difficulty attracting purchasers for failed banks despite providing loss guarantees.

In the case of OneWest, however, the FDIC seems to have given away the store.   Wealthy private investors are reaping billions in profits while the banking industry is being hit with huge FDIC assessments to cover banking failures and depositors are being paid virtually zero on their bank savings.   With possibly hundreds of more banking failures to come this year, the OneWest bonanza is not the type of publicity that the FDIC needs.

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