Banking Failures Hit 115 For 2009
The last week of October went out with a bang as regulators closed the largest number of banks in one week for 2009. All nine failed banks were subsidiaries of FBOP Corporation of Oak Park, Illinois. FBOP was not closed and not subject to the actions taken today by regulators.
U.S. Bank, N.A. of Minnesota, a wholly-owned subsidiary of U.S. Bankcorp, acquired all 9 failed banks under a purchase and assumption agreement with the FDIC.
U.S. Bank assumed all deposits of the 9 failed banks. As of September 30, 2009 the failed banks had 153 branches with combined deposits of $15.4 billion and combined assets of $19.4 billion. U.S. Bank and the FDIC entered into a loss-share transaction on $14.4 billion of the $18.2 billion in assets purchased by U.S. Bank.
The nine failed banks for October 30, 2009 are:
Bank USA, National Association, Phoenix, Arizona; California National Bank, Los Angeles, California; San Diego National Bank, San Diego, California; Pacific National Bank, San Francisco, California; Park National Bank, Chicago, Illinois; Community Bank of Lemont, Lemont, Illinois; North Houston Bank, Houston, Texas; Madisonville State Bank, Madisonville, Texas; and Citizens National Bank, Teague, Texas.
The FDIC estimates that the cost of today’s banking failures to the Deposit Insurance Fund (DIF) will total $2.5 billion.
FBOP’s Acquisition Rampage Leads To Failure
FBOP had been on an acquisition rampage since the early 1990’s acquiring 28 banks with combined assets of $11 billion. As recently as June 2008, FBOP attempted to acquire PFF Bancorp, a failing institution with $4.5 billion in assets. Ironically, when PFF was closed by regulators last year, it was U.S. Bank that took over PFF.
FBOP was expanding at the wrong time in the wrong states as noted on the company’s website.
FBOP Corporation is a privately-held, more than $18 billion multi-bank holding company based in Oak Park, Ill. Until early in 1990, FBOP Corporation owned just one bank, First Bank of Oak Park, which had $125 million in assets. The company has continually expanded since then by acquiring select financial institutions in Illinois, California, Texas and Arizona.
The firm is built on a community banking philosophy that allows local autonomy in business development and customer relationships. This strategy has allowed for FBOP Corporation’s sustainable growth and outstanding performance.
FBOP’s Attempt To Raise Capital Fail
By mid year 2009, FBOP was desperately attempting to raise additional capital as loan losses mounted – $500 million may not be enough.
Capital levels at the Oak Park-based company — with $18.6 billion in assets, mainly in subsidiary banks in California, Texas and Arizona and at Park National Bank in Chicago — have fallen to the point where the holding company is “critically undercapitalized.” That designation by law requires regulators to seize a lender within 90 days unless they specifically find another course to be preferable.
In an e-mail, FBOP Chief Financial Officer Michael Dunning said Wednesday that the bank “is making good progress on a capital transaction that will result in all of its subsidiary banks exceeding well-capitalized standards by Sept. 30.”
FBOP has been trying to raise $500 million in equity and debt for months, and more recently became embroiled in litigation with its own bank lenders, led by J. P. Morgan Chase & Co.
The continuing deterioration at FBOP, though, may mean that $500 million won’t be enough.
Mr. Dunning wrote that loan losses “were driven by overall economic trends and are consistent with those experienced in the industry.”
He added, “FBOP believes that its allowance for loan losses is more than adequate to absorb any and all losses in its portfolio.”
Obviously, FBOP did not succeed in establishing “well capitalized” standards. In addition, as delinquencies on all categories of loans continues to swell, many additional banks are likely to discover that loan loss reserves are inadequate. The FDIC Quarterly Banking Profile, due to late November, will provide additional insights on the health of the U.S. banking industry.