Will The FDIC Finally Shutdown Corus?
Will today be the end of the line for Corus Bankshares? The financial difficulties at Corus have been well known and documented for some time now. Corus’s own management as well as their independent accountants have admitted that there is little reason to believe that Corus can survive, given the extreme deterioration in its loan portfolio and depleted capital base.
The severe problems at Corus Bankshares were detailed here previously on two occasions – (see Deathwatch At Corus Bankshares) when the question was raised as to why Corus had not yet been closed down.
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.
In addition, it was speculated that another reason Corus had not been closed already could be due to the lack of a qualified and willing buyer (see Is Corus Bankshares on the Problem Bank List?).
The FDIC’s strategy during the banking crisis has been to let essentially insolvent banks stay open, hoping that the banks could either raise enough capital to survive or be bought out by a larger banking institution. The situation at Corus is so bleak and the future potential losses so large, that the FDIC has apparently been unable to persuade a large bank to take them over.
The closure of Corus could easily be one of the FDIC’s most costly closures, probably exceeding $2 billion based on the size and composition of Corus’ loan portfolio in one of the weakest property markets in the US. In addition, the FDIC has a paltry $18.8 billion remaining in its Deposit Insurance Fund (DIF). Expect the FDIC to soon be using its line of credit at the Treasury as the number of bank closures continue to increase.
Today Bloomberg reports that Corus Bankshares May Be Seized as FDIC Weighs Potential Bidders.
July 17 (Bloomberg) — U.S. regulators are poised to seize Corus Bankshares Inc., the Chicago lender crippled by loans for condominium construction, and are preparing to auction the entire company or its assets, people briefed on the matter said.
Corus’s fate has shifted into the hands of the FDIC because the lender and its financial adviser, Bank of America Corp., haven’t found a buyer willing to complete a deal in the absence of government assistance. After closing BankUnited Financial Corp. and IndyMac Bank, regulators agreed to loss-sharing provisions when selling them to investors this year.
U.S. regulators told Corus that it was undercapitalized as of May 1, and said they may place the bank into receivership if it failed to satisfy capital requirements, according to a May 18 filing with the U.S. Securities and Exchange Commission. The company’s nonperforming assets more than quadrupled to $2.5 billion as of March 31, the filing showed. It listed reserves of $338.6 million and reported a first-quarter loss of $285 million.
Corus Bankshares has been a failed bank for some time now – today might be the day that the FDIC officially admits that fact.