Sun West Bank Of Las Vegas Runs Out Of Luck

Sun West Bank, Las Vegas, Nevada Closed By Regulators – May 28, 2010

The Nevada Financial Institutions Division closed failed Sun West Bank today and appointed the FDIC as receiver.   Sun West’s seven branches will reopen on Tuesday as branches of City National Bank, Los Angeles, CA.  The FDIC, as receiver for Sun West, entered into a purchase and assumption agreement with City National Bank.  City National will assume all of the deposits of Sun West (paying a premium of .67%) and purchase essentially all of Sun West’s assets.

Sun West, the subject of a prior FDIC consent order, was overwhelmed by bad loans, mounting losses and the inability to raise additional capital.  Sun West’s bad luck and failure, however, is laying the groundwork for City National to expand its Nevada presence and eventually prosper as economic conditions improve.  City National already has five branches in Nevada and sees the acquisition of Sun West as a profitable long term investment.

According to City National’s Russell Goldsmith, Chief Executive, “The cost-effective acquisition of Sun West Bank expands City National’s commitment to Nevada and reflects our confidence in the state’s long-term economic prospects.  Sun West and City National fit well together, especially given that all seven of Sun West’s banking offices are located in the northern and southern Nevada communities that City National now serves. When the integration is complete, clients of both banks will enjoy the added convenience and capabilities of an expanded branch network as well as the outstanding service and financial solutions of America’s 27th largest bank.”

In addition, the acquisition’s risk is limited by the loss-share agreement entered into by the FDIC and City National that covers $280 million or 78% of the assets that were purchased by City National.   Some analysts have questioned if the loss-share agreements are unjustly enriching the acquirers of failed banks at the taxpayers expense.  The FDIC’s viewpoint is that loss share transactions are simpler, reduce cash outflows and allow troubled assets to be sold or restructured in an orderly fashion instead of being sold at steep discounts in a poor market.

Sun West was a mid sized bank that expanded its lending rapidly during Nevada’s real estate bubble years.  Assets grew from $180 million in 2002 to almost $400 million in 2006.   When real estate prices crashed after 2006, Sun West was overwhelmed by nonperforming loans and never recovered.   As of March 31, 2010, Sun West had total assets of $360.7 million and total deposits of $353.9 million.

The estimated cost to the FDIC for the Sun West failure is $96.7 million.   Sun West is the 78th banking institution to fail this year and the second in Nevada, after Carson River Community Bank, which was closed in February.