AmTrust Bank – Fourth Largest Banking Failure Of 2009

AmTrust And 5 Other Banks Closed By Regulators

Regulators closed an additional six banks today, bringing total banking failures for the year to 130 compared to 25 bank failures during 2008.   Three of the failed banks were located in Georgia, and one each in Illinois, Ohio and Virginia.

The failure of Ohio’s AmTrust Bank was the fourth largest banking failure of 2009.

Institution                      Date of Closure             Assets ($Billions)          Loss to FDIC

  1. Colonial Bank              August 14, 2009             $25.5                             $2.8 Billion
  2. Guaranty Bank            August 21, 2009             $13.5                             $3.0 Billion
  3. Bank United                May 21, 2009                 $13.1                             $4.9 Billion
  4. AmTrust                      December 4, 2009         $12.0                             $2.0 Billion
  5. United Commercial     November 6, 2009          $11.2                            $1.4 Billion

The failure of AmTrust bank is a familiar story of an institution making overly aggressive loans on inflated property values, resulting in large loan losses and depletion of capital.  AmTrust’s primary regulator, the Office of Thrift Supervision had previously issued a cease and desist order citing unsound banking practices and ordering AmTrust to raise additional capital.

Not only was AmTrust unable to raise additional capital but large depositors wisely chose to withdraw their funds from AmTrust, resulting in a large runoff of deposits.  The reduction of deposits to only $8 billion compared to assets of $12 billion further alarmed regulators and AmTrust’s fate was sealed.   AmTrust Financial Corp, the parent company of AmTrust Bank, had filed for bankruptcy on November 30th.

AmTrust Bank was acquired by New York Community Bank, Westbury, NY under a purchase and assumption agreement with the FDIC.  Although New York Community Bank assumed all of AmTrust’s deposits, they only purchased $9 billion of AmTrust’s $12 billion of assets, leaving the FDIC stuck with $3 billion of dubious loans for later disposition.  In addition, the FDIC entered into a loss-share transaction with New York Community Bank on $6.0 billion of the acquired assets, under which the FDIC agrees to share in the losses on these assets.

AmTrust’s closing will cost the FDIC an estimated $2.0 billion and is the second banking failure in Ohio this year.

Costly Week For The FDIC Deposit Insurance Fund

The FDIC, as receiver, entered into purchase and assumption agreements for all six failed banks.  The acquiring banks assumed all of the failed bank’s deposits and purchased the majority of the failed bank’s assets.  The vast majority of the failed bank’s assets that were purchased are subject to a loss-share transaction between the FDIC and the acquiring banks, under which the FDIC picks up a large share of losses on the purchased assets.

Total assets of all six failed banks amounted to $13.4 billion and total deposits were $9.4 billion.  Total estimated losses to the FDIC for this week’s six banking failures total $2.4 billion.

Six Banking Failures For December 4, 2009

Number 125 – Buckhead Community Bank, Atlanta, GA

Number 126 – First Security National Bank, Norcross, GA

Number 127 – Tattnall Bank, Reidsville, GA

Number 128 – AmTrust Bank, Cleveland, OH

Number 129 – Benchmark Bank, Aurora, IL

Number 130 – Greater Atlantic Bank, Reston, VA

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