Corus Bankshares Admits Dim Future
Since the FDIC keeps its Problem Bank List secret, we cannot know for sure if Corus Bankshares is listed as a Problem Bank. Based on recent Corus financial disclosures, however, it appears certain that Corus will soon be on the very public Failed Bank List.
Corus has been having major financial difficulties for some time now and the real mystery is why the FDIC has allowed Corus to remain open. Recent events that suggest a high probability of an FDIC closure of Corus Bankshares include 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.
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.