One Fourth Of Puerto Rico’s Banking Industry Collapses

Losses on 7 Banking Failures Total $7.3 Billion

Regulators turned their attention this week to Puerto Rico whose banking industry has been devastated by collapsing property values, poor lending decisions and a depressionary economy.   The basic facts on this week’s banking failures in Puerto Rico all indicate a banking system failure of epic proportions. 

The three failed Puerto Rico banks closed by regulators this week had total assets of $20.4 billion, representing one quarter of the Island’s total banking assets.  Total losses on the three failed Puerto Rican banks of $5.3 billion represent 33% of total losses on all 64 failed banks during 2010.  The largest banking failure this year by asset size, prior to today, was Amcore Bank on April 23rd with $3.87 billion in assets.  The three failed banks in Puerto Rico were all multi billion dollar failures – Eurobank at $2.3 billion, R-G Premier Bank at $5.9 billion and Westernbank at $12 billion. 

Unemployment in Puerto Rico exceeds 15%, the government is running a huge budget deficit and GDP is expected to decline by 5% in 2010.   According to the Census Bureau, the median family income for a family of 5 in Puerto Rico is $24,838.  If the $5.3 billion loss on this week’s three failed banks had to be borne by the taxpayers of Puerto Rico, the cost would be $6,625 for a family of 5 or 27% of gross annual income family income.  The only positive aspect of the banking failures in PuertoRico was that the FDIC was able to find buyers for all failed banks, but only after agreeing to heavily subsidize possible future losses of the acquiring banks thru loss-share transactions.

Regulators hope that consolidation of the Puerto Rican banking industry will stabilize a very weak banking industry and lead to loan growth.  Whether this optimistic scenario plays out depends on how quickly the acquiring banks can integrate their purchases.  The acquiring banks will likely need to devote a significant amount of management time to working out not only their own nonperforming loans but also those of the acquired failed banks.   Ultimately, if the Puerto Rican economy does not recover, the woes of the banking industry will continue.

17 Banks With Assets Exceeding One Billion Dollars Have Failed in 2010

In a week of mega banking failures, there were two other billion dollar banking failures in addition to the three in Puerto Rico – Frontier Bank in Washington State with $3.5 billion in assets and CF Bancorp in Michigan with $1.65 billion in assets.  The five multi billion dollar banking failures this week have resulted in losses to the FDIC of $7.3 billion, almost as much as the combined loss of $8.6 billion on the previous 57 banking failures in 2010.  The two smallest banking failures of the week were Champion Bank of Missouri with $187 million in assets and tiny BC National Banks, also of Missouri with assets of only $67.2 million.

As with all recent banking failures, the FDIC entered into a loss-share agreement with the acquiring banks to protect them from losses on the purchase of the failed banks’ assets.

With default rates continually increasing on commercial real estate and estimates of up to another 5 million residences heading towards foreclosure, it is not surprising that this year’s banking failures is expected to exceed last year’s total.  In addition, the number of Problem Banks reported by the FDIC has expanded greatly.  As of the latest report released by the FDIC there were 702 problem banks at December 31, 2009 up from 252 at the end of  2008.  Total assets held by the troubled institutions is $402.8  billion, up from $159.0 billion at the end of 2008.  

Eurobank, San Juan, Puerto Rico – Banking Failure #58

Eurobank, San Juan, Puerto Rico, was closed today by the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Oriental Bank and Trust, San Juan, Puerto Rico, to assume all of the deposits of Eurobank.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $743.9 million. Oriental Bank and Trust’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. Eurobank is the 58th FDIC-insured institution to fail in the nation this year. Eurobank is one of three institutions closed in Puerto Rico today.

R-G Premier Bank of Puerto Rico – Banking Failure #59

R-G Premier Bank of Puerto Rico, Hato Rey, Puerto Rico, was closed today by the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Scotiabank de Puerto Rico, San Juan, Puerto Rico, to assume all of the deposits of R-G Premier Bank of Puerto Rico.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.23 billion. Scotiabank de Puerto Rico’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. R-G Premier Bank of Puerto Rico is the 59th FDIC-insured institution to fail in the nation this year.

Westernbank Puerto Rico – Banking Failure #60

Westernbank Puerto Rico, Mayaguez, Puerto Rico, was closed today by the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Banco Popular de Puerto Rico, San Juan, Puerto Rico, to assume all of the deposits of Westernbank Puerto Rico.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $3.31 billion. Banco Popular de Puerto Rico’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. Westernbank Puerto Rico is the 60th FDIC-insured institution to fail in the nation this year.

CF Bancorp, Port Huron, MI – Banking Failure #61

CF Bancorp, Port Huron, Michigan, was closed today by the Michigan Office of Financial and Insurance Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First Michigan Bank, Troy, Michigan, to assume all of the deposits of CF Bancorp.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $615.3 million. First Michigan Bank’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. CF Bancorp is the 61st FDIC-insured institution to fail in the nation this year, andthe second in Michigan.

Champion Bank, Creve Coeur, MO – Banking Failure #62

Champion Bank, Creve Coeur, Missouri, was closed today by the Missouri Division of Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with BankLiberty, Liberty, Missouri, to assume all of the deposits of Champion Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $52.7 million. BankLiberty’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. Champion Bank is the 62nd FDIC-insured institution to fail in the nation this year, andthe second in Missouri.

BC National Banks, Butler, MO – Banking Failure #63

BC National Banks, Butler, Missouri, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Community First Bank, Butler, Missouri, to assume all of the deposits of BC National Banks.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $11.4 million. Community First Bank’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. BC National Banks is the 63rd FDIC-insured institution to fail in the nation this year, and the third in Missouri.

Frontier Bank, Everett, WA – Banking Failure #64

Frontier Bank, Everett, Washington, was closed today by the Washington Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Union Bank, National Association, San Francisco, California, to assume all of the deposits of Frontier Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.37 billion. Union Bank, N.A.’s acquisition of all the deposits was the “least costly” resolution for the FDIC’s DIF compared to all alternatives. Frontier Bank is the 64th FDIC-insured institution to fail in the nation this year, and the sixth in Washington. The last FDIC-insured institution closed in the state was City Bank, Lynnwood, on April 16, 2010.

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