Deathwatch At Corus Bankshares

Corus Management Gives Bleak Assessment

The deepening financial difficulties at Corus Bankshares were highlighted in the company’s latest Form 10-Q filed with the SEC today.   Corus is required by banking regulators to develop a plan to achieve and maintain minimum regulatory capital levels, but today’s 10-Q filing  provided little reason to believe that Corus would be successful.

While the Company intends to take such actions as may be necessary to enable Corus and the Bank to comply with the requirements of the Regulatory Agreements, there can be no assurance that Corus or the Bank will be able to comply fully with the provisions of the Regulatory Agreements…  Any material failure to comply with the provisions of the Regulatory Agreements could result in further enforcement actions by both the FRB and the OCC, or the placing of the Bank into conservatorship or receivership.

The Agreement also requires the Company to develop a capital plan by May 19, 2009, which shall address, among other things, the Company’s and the Bank’s current and future capital requirements…

In addition, the Bank is required to submit a capital restoration plan deemed acceptable by the OCC no later than May 22, 2009, or such later time as the OCC may agree.

The Bank is developing a capital restoration plan but no assurances can be provided that it will be able to submit an acceptable plan, including the required Company guarantee.

Corus is suffering from the extraordinary effects of what may ultimately be the worst economic downturn since the Great Depression.  The effects of the downturn have been particularly severe during the last 180 days of 2008, and have continued into 2009. Corus, with a portfolio consisting primarily of condominium construction loans, many in the hard hit areas of Arizona, Nevada, south Florida and southern California, has seen a rapid and precipitous decline in the value of the collateral securing our loan portfolio. Thus, we are experiencing significant loan quality issues.  The impact of the current financial crisis in the U.S. and abroad is having far-reaching consequences and it is difficult to say at this point when the economy will begin to recover. As a result, we cannot assure you that we will be able to resume profitable operations in the near future, or at all.

As of May 1, 2009, based on its March 31, 2009 Call Report, the Bank was not in compliance with the previous minimum capital ratios and was classified as “undercapitalized” under the OCC’s Prompt Corrective Action rules.

There is substantial doubt about our ability to continue as a going concern.  In its report dated April 6, 2009, our independent registered public accounting firm stated that our net losses raise substantial doubts about our ability to continue as a going concern.

The real mystery with Corus Bankshares is why the FDIC has not yet closed this involvent bank, especially since the bank’s management all but admits that their efforts to raise additional capital will not be successful.  The FDIC’s strategy seems to be to keep insolvent banks open until it becomes absolutely necessary to close them.  This strategy may have much to do with the fact that the FDIC’s Deposit Insurance Fund (DIF) is running dangerously low at a mere $18 billion dollars while insuring deposits of $4.7 trillion.   The low amount of the reserves in the DIF has been acknowledged by the FDIC to be a major concern.

The FDIC believes that it is important that the fund not decline to a level that could undermine public confidence in federal deposit insurance. A fund balance and reserve ratio that are near zero or negative could create public confusion about the FDIC’s ability to move quickly to resolve problem institutions and protect insured depositors.

The FDIC is presently proposing an increase in the insurance assessment on its member banks to cure the low DIF reserves.  In addition, the FDIC  is awaiting final approval for an increase in its credit line with the Treasury from $30 billion to $500 billion.   Once the DIF levels are restored and the credit line approved, expect to see numerous additions to the FDIC’s Failed Bank List.