Bidding Deadline Set For Corus – Closure Expected In September
Reuters is reporting a bidding deadline for problem bank Corus Bankshares of September 3, 2009. The disclosure of a bidding deadline followed shortly by a bank closure follows the procedure recently observed with the closing of Guaranty Financial Group last week. The closing of Corus Bankshares will not come as a surprise to anyone familiar with their financial situation.
As discussed on May 8, 2009, Corus faces financial difficulties beyond resolution, a fact admitted openly by Corus senior management – see Is Corus On The Problem Bank List? Problems facing Corus in May (which have only got worse since then) included the following:
- The resignation of all of Corus’ top executives in late April.
- The admission in early May by Corus that it was under capitalized and very likely not a viable entity. The company has been attempting to sell itself without success.
- The auditors issued a going concern opinion on Corus in April which triggered the resignation of Corus’ Chief Executive.
- The shares of Corus still trade on the Big Board and have dropped into penny land territory at around 40 cents.
- Corus reported a loss of $285 million in the first quarter.
- Corus has assets of approximately $7.7 billion of which $2 billion is in nonperforming loans. The bank also holds around $500 million in foreclosed property which is very costly to administer and dispose of. With over 30% of its assets foreclosed or nonperforming, the odds of survival are minimal.
- Corus made a very unwise decision to concentrate its lending in condo construction and property development in South Florida with prices at peak levels. The crash of Florida real estate, especially in condos, has resulted in billions of dollars of losses and nonperforming loans.
Corus had assets of approximately $7.1 billion as of June 30. Based on losses the FDIC has taken on previous closings this year as well as the large amount of foreclosed and nonperforming assets held by Corus, the loss to the FDIC will probably exceed 30% of Corus’s assets or approximately $2.5 billion.
2009 Billion Dollar Banking Failures
There have been 4 other bank closings this year where losses to the FDIC DIF fund exceeded $1 billion dollars, as follows:
- Bank United – May 21, 2009 – $4.9 Billion
- Guaranty Bank – August 21, 2009 – $3 Billion
- Colonial Bank – August 14, 2009 – $2.8 Billion
- Silverton Bank – May 1, 2009 – $1.3 Billion
Total losses to the FDIC Deposit Insurance Fund on bank failures through August 21, 2009 now total $15.4 billion, which raises a question previously addressed by the FDIC – will the DIF fund go negative in 2009?
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.
However, given the FDIC’s estimated losses from projected institution failures, the assessment rates adopted in the final rule are not sufficient to return the fund reserve ratio to 1.15 percent within 7 years and are unlikely to prevent the DIF fund balance and reserve ratio from falling to near zero or becoming negative this year.
Even though the FDIC has significant authority to borrow from the Treasury to cover losses, 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 views the Treasury line of credit as available to cover unforeseen losses, not as a source of financing projected losses.The FDIC projects that the reserve ratio will fall to close to zero or become negative in 2009 unless the FDIC receives more revenue than regular quarterly assessments will produce, given the rates adopted in the final rule on assessments.
The FDIC is having increasing difficulty finding qualified and willing banks to take over the ever increasing number of failed banks. The leisurely pace of closing problem banks in 2009 may also be based on the FDIC’s desire to keep the DIF positive.
A special increased DIF assessment on FDIC insured banks is due in September which would increase the DIF balance going forward. Based on the large number of Problem Banks and increasing defaults on all major categories of bank loans, the FDIC will not have an easy time keeping the DIF positive in 2009.