Failed Banks For May 21, 2009

Failed Banks: BankUnited, FSB

There was one more failed bank this week on May 21 – BankUnited, FSB, Coral Gables, FL.  2009 has now seen a total of 9 more failed banks than occurred for all of 2008.  The FDIC closure of BankUnited brings total banking failures for 2009 to 34 banks.  The FDIC estimates that the closure of BankUnited will cost the FDIC Deposit Insurance Fund (DIF) approximately $4.9 billion.

BankUnited, FSB – Coral Gables, Florida

The banking operations of BankUnited, FSB, including all nonbrokered deposits will be acquired by BankUnited, a newly chartered federal savings bank.  The 86 offices of BankUnited, FSB will all be open for normal operations tomorrow.  BankUnited, FSB was the largest independent bank in Florida, as will be its successor institution, BankUnited.

BankUnited, FSB has total assets of $12.8 billion and deposits of $8.6 billion as of May 2009.  The successor bank will assume virtually all of the assets and deposits of BankUnited, FSB.  The FDIC has agreed to a loss-sharing transaction on $10.7 billion of the assets acquired by BankUnited and expects the loss to the FDIC Deposit Insurance Fund (DIF) to be $4.9 billion.  The FDIC stated that BankUnited’s acquisition of the failed banks deposits and assets was the “least costly” solution for the DIF.

The successor bank will be run by John Kanas, former head of North Fork Bank.  Ownership of BankUnited includes WL Ross & Co. LLC; Carlyle Investment Management L.L.C.; Blackstone Capital Partners V L.P.; Centerbridge Capital Partners, L.P. LeFrak Organization, Inc; The Wellcome Trust; Greenaap Investments Ltd.; and East Rock Endowment Fund.  The new owners will provide $900 million in new capital to the successor bank, BankUnited.

Allowing private equity firms to takeover a failed bank marks a departure from past FDIC practice where failed banks were usually taken over by the FDIC or another banking institution.  The FDIC stated in its press release that “Due to the interest of private equity firms in the purchase of depository institutions in receivership, the FDIC has been evaluating the appropriate terms for such investments. In the near future, the FDIC will provide generally applicable policy guidance on eligibility and other terms and conditions for such investments to guide potential investors.”

Florida banks have had to absorb massive losses caused by the large drop in real estate values throughout the state.  BankUnited, FSB was also negatively impacted by its large portfolio of option ARM mortgages which have experienced a large amount of defaults.  BankUnited, FSB is the 34th banking failure this year and the third in Florida.  The previous banking failure in Florida was Riverside Bank of the Gulf Coast, Cape Coral on February 13, 2009.