Wednesday, March 31, 2010

Fed to stop buying from Fannie, Freddie (MBS learns to walk without the crutch)

Wednesday, March 31, 2010

Marketplace

Today, the Federal Reserve will stop buying mortgage-backed securities issued by Fannie Mae and Freddie Mac. Marketplace's Nancy Marshall Genzer looks at what this means for housing and home buyers.

BILL RADKE: Today, the Federal Reserve will kick away one of its props for the housing market. The Fed will stop buying mortgage-backed securities issued by Fannie Mae and Freddie Mac. Marketplace's Nancy Marshall Genzer looks at what this means for housing and home buyers.

NANCY MARSHALL GENZER: Fannie Mae and Freddie Mac buy mortgages from banks and resell them as mortgage-backed securities. As long as Freddie and Fannie can find buyers, mortgage rates stay low.

When the housing market collapsed, nobody wanted these securities. So the Federal Reserve stepped in and bought about a trillion dollars' worth.

Economist Catherine Mann of Brandeis University says now private investors can take over:

CATHERINE MANN: Until the Federal Reserve starts to relinquish its role, the rest of the financial sector has no incentive to get back in the saddle.

Zach Pandl is an economist with Nomura Securities. He thinks it's a gamble for the Fed to step aside:

ZACH PANDL: But the housing recovery is very wobbly at this point. So removing this program, which could potentially lead to higher mortgage rates, may keep the recovery quite weak for some time.

Pandl says the Fed has made clear it will step back in if mortgage rates get too high.

Nancy Marshall Genzer for Marketplace.


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Monday, March 29, 2010

FIG Partners LLC: Will the FDIC's new Loss Sharing arrangements for failed bank bidding really change the cost of closing a bank?

Will the FDIC’s changes to the Loss Sharing Arrangements yield higher prices to the FDIC, or just new angles on bidding? We understand the regulatory agency is removing the 95%/5% loss share coverage, as well as the use of specific thresholds. In its place, the FDIC will ask failed bank bidders to bid on the first tranche loss amount, which could be a positive number that banks have to pay upfront. However, banks may also increase the amount of negative bid to compensate them for their perceived risk bearing on an FDIC-assisted transaction. In fact, the law team at Jones Day suggests more buyers could boost their negative bid and opt out of loss sharing altogether (which may prove cheaper!).

We suspect that certain bank closings will be quite competitive and the new loss sharing terms lower the FDIC’s loss to the DIF (deposit insurance fund) and the cost to the U.S. taxpayer. But, there remain many, many small banks for which real bidders are necessary. Here, the bidders may just move their numbers around and derive the same economic cost. Or, maybe it really is better for some banks to scrap their plans for loss sharing and eliminate the hassles of the FDIC’s paperwork.

Sunday, March 28, 2010

Cautionary Tale: FirstFed’s Fault Lines

By RICHARD CLOUGH - 3/29/2010

Los Angeles Business Journal Staff


On one side of a long conference table in a room deep inside the headquarters of the Federal Deposit Insurance Corp. sat the management team of FirstFed Financial Corp. On the other side, about a dozen regulators.

It was a Wednesday afternoon in early December, and the FirstFed executives, jet-lagged from cross-country flights, had descended on Washington, D.C., to plead for the survival of one of California’s oldest financial institutions.

The holding company for First Federal Bank of California, a savings and loan with branches across Los Angeles, was up against the wall. Saddled with toxic adjustable rate mortgages, the thrift had endured more than a half-billion dollars in losses since the collapse of the housing market.

FirstFed’s failure seemed inevitable, but executives requested the emergency meeting with the FDIC and Office of Thrift Supervision to beg for a stay.

Babette Heimbuch, the thrift’s brash chief executive, argued that by many measures, the situation was improving. Chief Operating Officer James Giraldin detailed expected losses under the worst-case scenario. Others attested to the likelihood of new investment.

The FirstFed contingent left that afternoon confident. They had nailed the presentation.

“My read of the meeting was it couldn’t have gone better,” said one person in attendance.

Two weeks and two days later, regulators closed FirstFed, the sixth largest depository institution in Los Angeles.

To most, FirstFed was by then a familiar story: Mortgage lender dives headlong into adjustable rate loans, losses pile up, regulators shutter the institution. IndyMac Bank, Downey Savings & Loan and BankUnited, to name a few, had already suffered a similar fate.

On closer examination, however, FirstFed’s failure was hardly typical. Unlike many failed institutions, its bottom line and long-term outlook actually seemed to be improving.

Quarterly losses had narrowed all year. It still had significant capital and strong liquidity. Problem assets had been declining for months. Better still, the thrift was on the verge, insiders insisted, of a dramatic recapitalization.

“Our numbers were trending positively,” maintains Nicholas Biase, a New York-based investor and former director of FirstFed.

The details of banks’ interactions with regulators are almost never made public and the execution of bank closures is intentionally secretive; not surprisingly, many of those with knowledge of FirstFed’s final days asked to remain anonymous.

But through dozens of interviews with former FirstFed executives and directors, government regulators and banking industry leaders, as well as examination of hundreds of pages of internal e-mails and other documents, the Business Journal has reconstructed the months, weeks, days and hours leading up to the thrift’s closure.

It’s a story that typifies the challenges that many struggling banks and thrifts faced over the last several years as they tried to recover from self-inflicted wounds during the real estate boom – only to find overwhelmed regulators less than sympathetic.

It’s also a nuanced picture of a deeply troubled institution that perhaps could have been saved, if not for a convergence of unfortunate events – not the least of which was FirstFed’s shelving of a planned stock offering when its auditor suddenly quit. It also didn’t help when Heimbuch was forced out by regulators, who some believe had enough of her outspokenness.

And just when it seemed like a turnaround was possible, regulators went back on a pledge to give FirstFed more time to save itself. FirstFed, it turns out, survived multiple takeover attempts before it was closed Dec. 18 and its $6.1 billion in assets sold to Pasadena’s OneWest Bank, a rapidly growing thrift created from IndyMac’s failed assets and backed by financial heavyweights such as George Soros.

Regulators insist FirstFed was simply unfit to continue operating, but the timing of and circumstances surrounding the failure left some wondering if a weaker thrift was sacrificed to build up a growing one.

“I don’t think anybody exactly knows what the rationale behind (the closure) was,” Biase said.

FDIC officials, who declined to make available any examiners who worked directly with FirstFed, bristled at any allegations of favoritism.

“We take the bid that would cause the lowest hit to the deposit insurance fund,” said FDIC spokeswoman Lajuan Williams-Young.

For more see article at Los Angeles Business Journal.

Scrutiny rises of failed bank purchases

By Suzanne Kapner and Helen Thomas in New York. FT.com

Published: March 28 2010 21:33 | Last updated: March 28 2010 21:33

US regulators are stepping up their scrutiny of rules that enable buyers of failed banks to take an accounting gain – dubbed “Christmas capital” – by acquiring assets at a discount, according to people familiar with the discussions.

Regulators are discussing guidelines to limit how much of a bank’s capital can be comprised of such gains. The talks involve leading bank regulators, including the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

“The FDIC wants to make sure the acquirer has capital beyond the gain generated from the transaction,” said one person with knowledge of these deals. The FDIC hopes to prevent acquirers of troubled banks from facing problems down the road if assets deteriorate.

In typical deals, an acquirer would pay above market value for a bank and record the difference as goodwill, which is written off over time. In sales of failed banks by the FDIC, the opposite occurs. Most of the assets are sold at below market prices, and buyers are allowed to record the difference as a gain, known as the bargain purchase option or negative goodwill, that translates into an increase in capital.

An accounting rule change last year allowed companies to recognise such gains immediately as earnings, whereas previously the gain was capitalised on the balance sheet as deferred revenue. But that aid to failed bank buy-outs might now be partially reversed.

“The FDIC is taking away a little bit of the ‘juice’ in the failed bank cocktail, making it a little less attractive to buy failed banks and a little less expensive for taxpayers,” said Chris Marinac, analyst with FIG Partners.

FDIC spokesman Andrew Gray characterised the change as a positive development that pointed to a stronger economy.

Banks benefiting from the rule in recent months have included East West Bancorp, which booked a $292m after-tax gain when it acquired $10.4bn of assets of the shuttered United Commercial Bank, and Pacific West, which booked a $39m after-tax gain when it acquired m’s $1.2bn in assets.

In another sign that regulators are tightening the rules, the FDIC is scaling back its role in loss-sharing agreements. The FDIC is to only cover losses on up to 80 per cent of bad loans, compared with a previous ceiling of 95 per cent.

The Financial Times Limited 2010

Friday, March 26, 2010

First Quarter 2010 Failed Banks Statistics

Posted 3.26.2010 7:32 EST

March and First Quarter 2010 Summary

In March 2010, 19 US banking institutions failed with a total of $7 Billion in combined assets. The FDIC entered into loss-share transactions (an FDIC arrangement with acquiring bank for FDIC to assume a share of future loan losses) in 16 of the failures covering a total of almost $3.8 Billion of failed bank assets or 54% of the failed asset balance. The March cost to the Deposit Insurance Fund ("DIF") was $2.1 Billion.

In the first quarter of 2010 41 banks failed with a total of $22.8 Billion in combined assets. The FDIC entered into loss-share transactions in 35 cases covering a total of $15.4 Billion of failed bank assets or 67% of the failed asset total. The total First Quarter cost to the Deposit Insurance Fund ("DIF") was $6.5 Billion.

CMBS Loans in Special Servicing Hit $75Bln

www.crenews.com

The volume of CMBS loans in special servicing as of the end of last month increased by $3.4 billion to $75 billion. That means 10.7 percent of the entire CMBS universe tracked by Realpoint is now in the hands of the industry’s 28 special servicers, which are handling 4,292 loans. The volume of loan transfers to special servicers has been increasing steadily since October 2008, when only $8.3 billion were in their hands. For each of the past six months, at least $3 billion has transferred. If that pace keeps up, and few expect it not to, roughly 20 percent of all CMBS loans, by balance, will be in special servicing by the end of next year.

Earlier, Fitch Ratings predicted that 20 percent, by number, of all CMBS loans will be in special servicing by 2012. That’s based on the expectation that many loans will also move out of special servicing.

Any way you shake it, special servicers are facing mounting workloads and each has been actively adding asset managers and other workout specialists. Based on Fitch’s prediction, they’ll have to more than double their workforces in the coming years. LNR Partners remains the most active special servicer, handling 1,160 loans with a balance of $19.6 billion,

CWCapital Asset Management is overseeing 905 loans with a balance of $18.4 billion and Midland Loan Services is handling 517 loans with a balance of $8.5 billion. The three oversee 62 percent of all loans in special servicing. The list of loans that transferred to special servicing is heavily weighted with loans that might still be performing, but have either matured or are close to maturing. And many of those are backed by properties that, even in a more liquid market, would have a tough time qualifying for a full refinancing.

The biggest such example is a $284.5 million loan on a portfolio of full-service hotels that were owned by MeriStar Hospitality Corp., a REIT acquired by Blackstone Group in 2006. The loan, securitized through Bear Stearns Commercial Mortgage Securities Inc., 2007-BBA8, is set to mature in May. Its two one-year extension options have already been exercised.

While the loan has not defaulted - it continues to make its $508,916 monthly interest payment - it’s not likely to get refinanced, given the sharp decline in cash flow in the hotel sector. Another big-ticket transfer was the $186.6 million mortgage on the Southdale Mall, a 1.3 million-square-foot shopping center in Edina, Minn., owned by a venture of Simon Property Group and Farallon Capital Management. A $150 million piece of the loan was securitized via Banc of America Commercial Mortgage Inc., 2005-1.

The debt matures next month, but the collateral was only 57 percent occupied as of last September, when it was on track to generate $14.3 million of net cash flow. That gives its loan a debt yield of only 7.7 percent - way too low to get fully refinanced in today’s market. But the loan continues to pay simply because it requires only interest payments. With Libor so low, its annual debt-service requirement is only $9 million.

Wednesday, March 24, 2010

FDIC Taps Advisers for Structured Offerings

cre weekly

3.19.2010


The pipeline of structured portfolios planned by the FDIC keeps growing. The agency is said to have just tapped Milestone Advisors of Washington, D.C., to sell a stake in a portfolio of commercial mortgages, and HSBC Securities of New York to handle a residential portfolio.

The latest offerings would bring to six the number of structured portfolios the agency has in its pipeline. Those deals could have a balance of some $5 billion and include a $610.5 million portfolio of residential acquisition, development and construction loans that Mission Capital Advisors is handling. Also included is a portfolio of $1.8 billion of commercial acquisition, development and construction loans and conventional commercial mortgages being marketed through Barclays Capital.

So far, FDIC has completed the sale of 11 structured portfolios with a combined balance of $14.8 billion. It sells only an interest, of 20 to 40 percent, in each, keeping the rest and providing 50 percent financing.

The biggest so far involved $4.5 billion of assets from the failed Corus Bank. An investor team led by Starwood Capital Group paid $554.4 million for a 40 percent stake in the portfolio, valuing it at roughly 45 cents on the dollar.

With the upcoming offerings, the agency has used 10 of the 14 contractors it tapped to help it structure and sell large portfolios of loans. Barclays has handled the most, $6.1 billion, which includes the massive Corus Bank portfolio. And Keefe, Bruyette & Woods has handled the sale of three portfolios totaling $4.1 billion. While the agency is clearly pleased with its structured sales, many investors aren’t, simply because they’ve been pushed out of competing.

A host of investors and investor groups were set up when the economy started nose-diving and banks started failing. Their idea: buy loans at discounts to their face values in the hopes of working them out and profiting. Often, they pursue loans on properties in their geographic region. While motivated by profit, their investments provide price discovery to local real estate markets, which is instrumental for a recovery. Indeed, more than 200 investors bought loans through the agency’s whole-loan offerings.

But the agency is facing an avalanche of bank failures. Since the beginning of last year, it has taken over 169 failed banks and classified another 702 institutions, with nearly $403 billion of assets, as “problem banks.” Selling loans one-at-a-time wasn’t going to hack it. So it’s been selling commercial and residential mortgages through structured offerings and consumer credits through its whole-loan sales effort. By selling only interests in portfolios of assets, the FDIC could benefit if asset values climb.

The bulk of failed-bank assets are transferred to acquiring institutions through loss-sharing agreements, where FDIC insulates the acquirer from 80 percent of the losses generated by assets subject to the agreement. That insulation level could climb to 95 percent under certain circumstances. Some investors who pursued the purchase of individual loans are livid, not only at the agency’s strategy of selling through its structured offerings, but also at the loss-share agreements. “FDIC is hindering the redevelopment of communities,” said one, who noted that assets subject to loss-sharing agreements can’t be sold for seven years. “Markets won’t find their bottoms,” he said. “Their limbo is causing everyone else to remain in limbo.” Said another investor who raised capital to pursue small-balance loans: “I’m not wild about what the FDIC is doing. As a small investor, this is certainly a pain in the behind.” With assets held off the market, “everyone’s in a state of suspension,” said another.

One investor noted that the RTC got hammered by public opinion during its early years for selling assets at what now can clearly be called fire-sale prices. As investors flocked to the agency, they drove prices up to the point that some probably ended up over-paying for assets.

Perhaps, the investor said, the flip is happening today. FDIC’s structured offerings have evidently attracted the big guns with the lure of plentiful assets at low prices. But some indications are that some investors are paying up. For instance, Starwood Capital’s offer for the portfolio of Corus Bank assets was 23 percent higher than the cover, or second-place bid.

Because of the time and money involved in reviewing the hundreds of assets in a typical structured portfolio, some investors might eventually bow out in frustration. If, or when that happens, pricing is sure to suffer.

Tuesday, March 23, 2010

Four Seasons Maui on Ropes

MARCH 22, 2010

Dell Family Investment Firm Skips Mortgage Payment, Seeks Debt Restructuring

By KRIS HUDSON, Wall Street Journal

The Four Seasons Maui has gone delinquent on its $425 million of mortgages just as the Four Seasons New York and others have reached compromises with their lenders.

MSD Capital LP, the private investment firm of Dell Inc. founder Michael Dell and his family, skipped the February payment on the debt as it seeks to restructure the loan, according to credit-rating company Realpoint LLC. The 380-room hotel's debt is split between two securitized mortgages, one of $250 million and one of $175 million.

The Four Seasons Maui has struggled in the past year along with most luxury hotels in Hawaii. Its occupancy fell to 60% in last year's third quarter from 79% a year earlier, according to Realpoint. Its net cash flow declined from $32.9 million in 2007 to $10.9 million in the first three quarters of 2009.

With the hotel unable to make its $23.6 million in annual debt service, MSD had paid more than $12 million in the past year to bridge the gap. An MSD spokesman declined to comment. The special servicer overseeing the loan, CWCapital Asset Management LLC, didn't return messages seeking comment.

Meanwhile, Beanie Baby tycoon Ty Warner's Ty Warner Hotels and Resorts reached a deal last week to extend by two years its mortgage on several resorts, including the 368-room Four Seasons New York, according to a person familiar with the talks. The mortgage had come due last January, but the four resorts pledged as collateral for the loan weren't generating enough cash flow to qualify for an extension.

Under the new pact, Mr. Warner's company has agreed to pay $25 million of the mortgage, bringing its outstanding balance to $320 million. He also added his Montecito Country Club in Montecito, Calif., as collateral. The other properties covered by the loan are the Four Seasons Resort The Biltmore in Santa Barbara, Calif.; San Ysidro Ranch in Santa Barbara; and the Las Ventanas resort in Los Cabos, Mexico.

A spokeswoman for the special servicer overseeing the Ty Warner mortgage, Berkadia Commercial Mortgage LLC, declined to comment.

Securitized mortgages are chopped up and sold to thousands of investors as bonds, with servicers overseeing the loans in the interests of those investors. Special servicers handle complex negotiations with borrowers.

Other Four Seasons hotels are working on compromises with their lenders. Mixed-use developer Millennium Partners LLC this month saved its Four Seasons San Francisco from foreclosure by bringing in Westbrook Partners LLC to pay $35 million of the hotel's $90 million securitized mortgage.

Four Seasons Dallas owner BentleyForbes LLC is negotiating with the special servicer overseeing the hotel's $183 million mortgage to revise the loan's terms. In the interim, the two entered a forbearance pact in which the special servicer has agreed not to foreclose as they try to work out a compromise.

MSD Capital bought the Four Seasons Maui for $280 million in 2004. It then refinanced the property in 2006 with the two mortgages totaling $425 million.

The Maui hotel is one of several Mr. Dell purchased in Hawaii in recent years. His MSD Capital partnered with Rockpoint Capital LLC in 2006 to pay $502 million for the 243-room Four Seasons Hualalai hotel and 8,800 adjacent acres for residential development. MSD has in excess of $10 billion in assets under management.

Friday, March 19, 2010

Regulators shut 7 banks in 5 states; 37 in 2010

By MARCY GORDON, AP Business Writer
Fri Mar 19, 8:30 pm ET


WASHINGTON – Regulators on Friday shut down seven banks in five states, bringing to 37 the number of bank failures in the U.S. so far this year.

The closings follow the 140 that succumbed in 2009 to mounting loan defaults and the recession.

The Federal Deposit Insurance Corp. took over First Lowndes Bank, in Fort Deposit, Ala.; Appalachian Community Bank in Ellijay, Ga.; Bank of Hiawassee, in Hiawassee, Ga.; and Century Security Bank in Duluth, Ga.

The agency also closed down State Bank of Aurora, in Aurora, Minn.; Advanta Bank Corp., based in Draper, Utah; and American National Bank of Parma, Ohio.

The FDIC was unable to find a buyer for Advanta Bank, which had $1.6 billion in assets and $1.5 billion in deposits. The regulatory agency approved the payout of the bank's insured deposits and it said checks to depositors for their insured funds will be mailed on Monday.

The failure of Advanta Bank is expected to cost the federal deposit insurance fund $635.6 million.

For the other banks:

• First Citizens Bank of Luverne, Ala., agreed to assume the deposits and assets of First Lowndes Bank. First Lowndes had $137.2 million in assets and $131.1 million in deposits. The FDIC expects that the cost to its insurance fund will be $38.3 million.

• Community & Southern Bank of Carrollton, Ga., agreed to assume the deposits and assets of Appalachian Community Bank. The bank had $1 billion in assets and about $917.6 million in deposits. The cost to the insurance fund is expected to be $419.3 million.

• Citizens South Bank of Gastonia, N.C., will assume the deposits and assets of Bank of Hiawassee. Bank of Hiawassee had about $377.8 million in assets and $339.6 million in deposits. The failure is expected to cost the insurance fund $137.7 million.

• Bank of Upson, based in Thomaston, Ga., agreed to assume the assets and deposits of Century Security Bank, which had $96.5 million in assets and $94 million in deposits. It is expected to cost the insurance fund $29.9 million.

• Northern State Bank in Ashland, Wisc., agreed to assume the deposits and assets of State Bank of Aurora. The bank had about $28.2 million in assets and $27.8 million in deposits. The FDIC expects the move will cost the insurance fund $4.2 million.

• National Bank and Trust Co., based in Wilmington, Ohio, agreed to assume the assets and deposits of American National Bank, which had $70.3 million in assets and $66.8 million in deposits. The cost to the insurance fund is expected to total $17.1 million.

The pace of bank seizures this year is likely to accelerate in coming months, regulators have said, as losses mount on loans made for commercial property and development.

The bank failures — the 140 last year was the highest annual tally since the height of the savings and loan crisis in 1992 — have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.

Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks.

Banks, meanwhile, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5 percent, from 2008, the FDIC reported recently.

New Senate legislation was unveiled this week that is a blueprint for the biggest overhaul of financial regulations since the 1930s, giving the government unprecedented powers to split up large complex firms if they pose a threat to the nation's financial system. It would also create an independent consumer watchdog.
The bill crafted by Sen. Banking Committee Chairman Christopher Dodd, D-Conn., would force big, complex financial firms to pay insurance premiums in advance for a $50 billion fund to cover possible failures in their ranks. The fees levied up front would give the FDIC an immediate source of funds to resolve big failed institutions, so that taxpayer money wouldn't be used.

The costs of resolving smaller banks that fail would continue to be covered by the FDIC.

The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.
___
AP Business Writer Tim Paradis in New York contributed to this report.

Tuesday, March 16, 2010

FDIC Kicks Off Its Securitization Program

Commercial Mortgage Alert 3.12.10

The FDIC's long-awaited program for securitizing real estate assets inherited from failed banks is starting to take shape.

Last Friday, the agency floated $1.8 billion of notes backed by residential MBS from seven collapsed banks. On Wednesday, it conducted its first commercial MBS transaction - a $1.4 billion offering backed by condominium-construction loans, other commercial mortgages and foreclosed properties from Corus Bank. And next week, it is expected to launch an offering backed by residential mortgages. The FDIC is guaranteeing the low-yield bonds in all three offerings and tapped Barclays as the sole underwriter for each.

Meanwhile, the agency is also working on a series of residential and CMBS transactions in which it would provide limited or no guarantees to bondholders. The FDIC is being advised on that effort by Pentalpha, an advisory shop in Greenwich, Conn., and Sandler O'Neill & Partners, a New York investment-banking boutique. The FDIC is close to selecting underwriters for the first deals.

Because of the spike in failed banks stemming from the market downturn, the FDIC has inherited an avalanche of loans, securities and properties. Just as it did during the last major real estate collapse in the early 1990s, the agency is turning to securitization as a way to liquidate or finance some of those assets.

This week's CMBS deal stemmed from the failure of Corus, a Chicago bank brought to its knees by a heavy concentration of condominium-construction loans. In October, the FDIC sold a 40% stake in a $4.5 billion portfolio of Corus assets to a Starwood Capital partnership. The Starwood team put up $553 million of cash, and the FDIC's retained 60% stake equaled a contribution of about $840 million. The FDIC also agreed to provide the FDIC-Starwood partnership with $1.4 billion of low-cost financing, putting the portfolio's value at $2.77 billion.

The bond deal covered the FDIC's financing obligation. Because of the agency's guarantee, the three-class offering was snapped up by investors who usually buy agency mortgage securities or U.S. treasury bonds.

All three classes priced 2 bp lower than initial guidance. The final spreads were 18 bp over eurodollar futures for a 1.6-year tranche, 21 bp over interpolated swaps for a 2.6-year class and 24 bp over interpolated swaps for 3.6-year securities.

The collateral pool encompassed 79 loans with a $3.5 billion balance, plus foreclosed properties that secured 26 other loans with an $893 million balance.

The FDIC partnership will use the proceeds to cover future funding commitments of the collateral loans and expenses for construction, leasing and operation of properties.

Friday, March 12, 2010

FDIC Closes on Sale of $1.8 Billion of Notes Backed by Mortgage-Backed Securities

Transaction Adds Liquidity to DIF and Stimulates Investor Demand

FOR IMMEDIATE RELEASE

March 12, 2010

The Federal Deposit Insurance Corporation (FDIC) today closed on a sale of notes backed by residential mortgage backed securities (RMBS) from seven failed bank receiverships. The sale was conducted through a private placement priced and allocated on March 5th. The transaction was met with robust investor demand, with over 70 investors participating across fixed and floating rate series. The investors included banks, investment funds, insurance funds and pension funds. All investors were qualified institutional buyers.

The $1.81 billion of notes is backed by 103 non-agency residential mortgage-backed securities. The aggregate unpaid balance of the 103 securities was approximately $3.6 billion at the time of the sale. The FDIC retained an equity interest in each series.

The transaction features two series of senior notes, each backed by a separate pool of RMBS. The larger series of approximately $1.3 billion, is based on option ARMS and has a floating rate tied to the one-month LIBOR. The smaller series of $480 million is based mostly on fixed-rate RMBS and pays a fixed rate. Both series priced at rates comparable to Ginnie Mae collateralized mortgage obligations.

The timely payment of principal and interest due on the notes are guaranteed by the FDIC, and that guaranty is backed by the full faith and credit of the United States.

The $1.8 billion in proceeds will go to the seven failed bank receiverships and eventually be used to pay creditors, including the FDIC's Deposit Insurance Fund (DIF). This will maximize recoveries for the receiverships and recover substantial funds for the DIF while also meeting strong investor demand. Underscoring this investor demand, the issuance was significantly oversubscribed allowing the transaction to price at lower spreads to benchmark rates.

Barclays Capital, New York, New York served as the sole bookrunner, structuring agent and financial advisor to the FDIC on the Structured Sale of Guaranteed Notes (SSGN 2010-S1).

This offering marks the first issuance of notes by the FDIC since the early 1990s and the first issuance by the FDIC of FDIC guaranteed debt backed by the full faith and credit of the U.S.

SSGN 2010-S1 Transaction Summary:

The FDIC issued $1.81 billion in notes backed by non-agency residential mortgage backed securities. The underlying securities, which were held by the FDIC as receiver for various depository institutions, were sold to a statutory trust, which issued senior notes backed by those underlying securities. The notes were issued with the benefit of a full and unconditional FDIC Guaranty backed by the full faith and credit of the United States of America.

Pricing Details

The transaction features two series of senior notes, each backed by a separate pool of securities.

Senior I-A notes are backed by securities which are in turn backed by option ARM mortgage loans and pay a monthly floating rate coupon of 1-month LIBOR plus 0.55% per annum with a maximum rate of 7.00% per annum.

Senior II-A notes are backed by securities which are in turn backed primarily by fixed rate mortgage loans and pay a monthly fixed rate coupon of 3.25% per annum.

Pricing Date: March 5, 2010

Closing Date: March 11, 2010

Financial Advisor to FDIC/Structuring Agent/Sole Bookrunner: Barclays Capital

Investor Participation

The transaction was met with robust investor demand and subscription levels with over 70 accounts participating across fixed and floating rate series.
Investors included banks, investment funds, insurance funds, and pension funds. All investors were 144A eligible (Qualified Institutional Buyers).

Note Structure

The FDIC will initially retain the owner trust certificate, or equity interest, for each series, which will not receive any principal or interest cashflows until the senior notes for that series have been repaid in full.

The senior notes will amortize based on the timing of cashflows on the underlying securities. Principal will not be paid based on a fixed amortization schedule.

Each series of senior notes will benefit from credit enhancement in the form of overcollateralization and excess interest, in addition to the FDIC Guaranty.

Senior I-A notes were structured with 56.51% initial overcollateralization.

Senior II-A notes were structured with 11.97% initial overcollateralization.

FDIC Guaranty

The FDIC, in its corporate capacity, will fully and unconditionally guarantee the timely payment of principal and interest due and payable on the senior notes.

The Guaranty is backed by the full faith and credit of the United States of America.

Thursday, March 11, 2010

Unemployment tops 20% in eight California counties

latimes.com

THE ECONOMY

The state's jobless rate of 12.5% in January was its worst on record and fifth-highest in the nation.

By Alana Semuels

March 11, 2010

For many California areas, unemployment rates moved persistently higher in January, indicating that the national economic recovery hasn't yet translated into jobs for the Golden State.

New county-by-county figures released by the state Wednesday showed that in eight counties, more than 1 in 5 people were out of work. Moreover, revised numbers for last year show that fewer people were employed than was previously believed.

The state was one of five, along with Florida, Georgia, North Carolina and South Carolina, that reached their highest unemployment rates since the government began keeping track in 1976, according to the Bureau of Labor Statistics. California's was 12.5% in January, up from 12.3% in December.

"The unemployment rate will be persistently at this high level for at least a few more months," said Esmael Adibi, an economist at Chapman University in Orange.

The unemployment rate for the Riverside-San Bernardino-Ontario metro area reached 15% in January, its highest since 1990, the earliest year for which the state has comparable data available. Unemployment in Orange County reached 10.1%, up from 9.1% in December.

The state's revised data for last year showing elevated unemployment indicate that a recovery could take longer than previously predicted.

"The impact on the labor market was much more severe than what we had estimated," Adibi said.

Most counties were still struggling under the burden of joblessness, especially the eight counties where rates were higher than 20%. Merced County, for instance, had an unemployment rate of 21.7% in January, and Imperial County's rate was 27.3%.

The national unemployment rate in January was 9.7%, and the country experienced a strong 5.75% annualized increase in gross domestic product in last year's final three months.

"The real mystery now is why we aren't getting job growth when the GDP has been positive," said Stephen Levy, director of the Center for Continuing Study of the California Economy.

Budget problems in state and local government are expected to further drag down the state's recovery, Levy said. Even if they don't get pink slips, state employees are earning less money because of furloughs and salary reductions, which reduces consumer spending in the state.

The government sector, which includes public education, lost 4,500 jobs from December to January. Nancy Hack lost her job as a gardener with the Los Angeles Department of Recreation and Parks a year ago, and said that finding work has been a challenge at her age, 54.

"I'm like a fish out of water," she said.

Los Angeles County, with an unemployment rate of 12.5%, was hard hit by declines in the trade, transportation and utilities sector, which shed 21,900 jobs, and professional and business services, which lost 16,300 jobs.

The same sectors were hit in the Inland Empire, losing 7,700 and 3,600 jobs, respectively. Orange County lost 5,700 jobs in trade, transportation and utilities and 3,000 in professional and business services.

San Diego County's unemployment rate reached 11% in January, up from a revised 10.3% in December. The unemployment rate in Ventura County was 11.6% in January, up from a revised 10.9% in December.

California's unemployment rate was the fifth-highest in the nation, behind Michigan, Nevada, Rhode Island and South Carolina.

alana.semuels @latimes.com

Wednesday, March 10, 2010

FDIC Issues $1.38 Billion of Bonds Backed by Assets

Bloomberg

March 10, 2010, 5:26 PM EST

By Jody Shenn

March 10 (Bloomberg) -- The Federal Deposit Insurance Corp. sold $1.38 billion of guaranteed notes backed by construction loans and seized property from a failed bank, according to a person familiar with the offering.

The debt was broken into three parts, with an $850 million portion that matures no later than October 2012 pricing to yield 21 basis points more than interest-rate swaps, said the person, who declined to be identified because terms aren’t public. Barclays Capital underwrote the sale, the person said.

The debt represents part of the assets the FDIC acquired after seizing Chicago-based Corus Bank in September, the person said. The offering was one of two sales planned for this month of bonds tied to loans the FDIC sold partly last year through so-called structured loan sales, people familiar with the matter said last month.
The pace of bank failure will “pick up this year and is going to exceed where we were last year,” FDIC Chairman Sheila Bair told reporters last month.

Last week the agency sold $1.81 billion of guaranteed debt backed by mortgage securities from failed banks, as it begins to tap the bond market to raise cash after the collapse of 193 banks since 2007. The FDIC also may sell bonds linked to the assets of Houston-based Franklin Bank this month, the people said.

Two Other Portions

The bonds in the latest offering carry no coupons, the person said. About $377 million of notes that mature no later than October 2013 priced to yield 24 basis points more than the benchmark euro-dollar synthetic forward rate, while $150 million of debt maturing no later than October 2011 sold at a spread of 18 basis points more than swaps.

In October, a group led by Starwood Capital Group LLC and TPG agreed to buy an interest in $4.5 billion of Corus’s real estate assets, mainly construction loans for condominiums, paying $554 million for 40 percent of the equity in a special- purpose company. Corus was a unit of Corus Bankshares Inc.

In such structured-loan deals, the FDIC places the assets of a failed bank in a special-purpose company, then sells some of the equity and keeps the rest while guaranteeing lending from the seized institution to the vehicle used to finance the remainder of its purchase, providing leverage to the private- share buyers.

--Editors: Charles W. Stevens, Richard Bedard
To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net
To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

Tuesday, March 9, 2010

Despite prominent leaders, Irvine firm's bank fails: Finding PC Banking Models

March 6, 2010 | 7:30 am

E. Scott Reckard, Los Angeles Times


Regulators late Friday shut down Waterfield Bank of Germantown, Md., a thrift operated from Irvine that had helped big companies, insurers and organizations such as AARP and the American Medical Assn. offer savings accounts, CDs and other banking products under the clients' names.

A team of prominent financial figures, including an honor roll of California bankers, had teamed up with the wealthy Waterfield family in an attempt to use the small savings and loan as a vehicle to expand the private-label banking services offered by its parent company, Affinity FinancialCorp. in Irvine.

Affinity is part of the Waterfield family's private businesses, operated as Waterfield Group. A call seeking comment from its Irvine offices wasn't returned Friday afternoon.

Statements issued by regulators about the shutdown don't make clear what went wrong with the business plan. The U.S. Office of Thrift Supervision said the bank was critically undercapitalized, with a negative net worth and no "viable prospect" of returning to profitability or raising capital.

Directors of the bank or its parent companies included Joseph Wender, a longtime partner at Goldman, Sachs & Co.; Eugene Fife, a former Goldman general partner; Robert Albertson, chief strategist at bank research firm Sandler O'Neill; private investor John M. Eggemeyer, chairman of PacWest Bancorp, which acquired failed California banks in November 2008 and August 2009; Robert T. Barnum, a private investor who helped run American Savings Bank when it was owned by a group run by Texas investor Robert M. Bass; Timothy Chrisman, a former bank executive and consultant who is chairman of the Federal Home Loan Bank of San Francisco; and Howard Gould, vice chairman of Irvine bank consulting firm Carpenter & Co. who was California commissioner of financial institutions in 2004 and 2005.

Clients of Affinity's private-label services included the International Assn. of Fire Fighters, AARP Financial Inc., the AMA, the Air Force Assn., BMW, GE Capital and the International Brotherhood of Teamsters, according to Waterfield Group's website.

Most of the so-called affinity banking was conducted over the Internet, through portals on the clients' websites offering savings accounts, certificates of deposit, ATM cards and other services, a Federal Deposit Insurance Corp. spokesman said.

The FDIC spokesman, David Barr, said the agency planned to mail checks immediately to holders of CDs and retirement accounts. Holders of other accounts will have a month to transfer funds to another bank before the FDIC mails them checks, he said.

Waterfield Bank, which began operations in June 2000 as Assurance Partners Bank, had one branch and 34 employees, with total assets of $155.6 million and retail deposits of $156.2 million, regulators said.

Also Friday, regulators closed one bank each in Florida, Illinois and Utah, bringing the number of bank failures this year to 26.

-- E. Scott Reckard

Monday, March 8, 2010

FDIC Said to Encourage Pension Funds to Invest in Failed Banks

Bloomberg News

March 8 (Bloomberg) -- U.S. regulators are encouraging public pension funds that control more than $2 trillion to inject capital directly into the banking system by buying failed lenders, said people briefed on the matter.


The Federal Deposit Insurance Corp. is trying to attract pension funds that want to buy stakes or assets of distressed bank-holding companies, according to two of the people. Direct investments may allow public retirement funds to reduce fees for private-equity managers, and the agency to get better prices for distressed assets, the people said. They declined to be identified because talks with regulators are confidential.

Oregon’s retirement fund may contribute $100 million as regulators seek “the support of state pension funds to solve the crisis surrounding ongoing bank failures,” Jay Fewel, a senior investment officer at the Oregon State Treasury, said in a presentation made at the fund’s Feb. 24 meeting. New Jersey’s pension fund may also participate, said Orin Kramer, chairman of New Jersey’s State Investment Council.

The FDIC shuttered 140 lenders last year and expects the tally may be higher in 2010. Regulators have avoided signing up private-equity firms as rescuers on concern that they might take too much risk. Pension funds, whose 100 largest members manage $2.4 trillion, could provide capital to acquire deposits and outstanding loans from collapsed banks, according to the people.

Welcome Mat

“The FDIC is constantly looking at structures where we can get the greatest opportunity to tap into capital that we have not had the success reaching through previous disposition methods,” FDIC spokeswoman Michele Heller said in an e-mailed statement. “We welcome and work with all investors.”

Current rules don’t prohibit pension funds from buying failed banks. Until now, they have typically chosen to invest through private-equity firms using limited partnerships, which gives pension funds little to no control over the day-to-day management of the investments. They also pay management fees levied on the amount of money committed as well as a percentage of any profit.

“We’ve been examining a broad range of alternatives to take advantage of what I believe are attractive transactions coming out of the FDIC,” said Kramer at New Jersey’s State Investment Council. New Jersey’s pension system faces a shortfall of about $46 billion as of last year because of investment declines and a failure to make full contributions, according to annual financial reports.

Oregon State Fund

Oregon would invest in Community Bancorp LLC, a bank being formed by Sageview Capital LLC, according to the Oregon presentation. Sageview was founded by former Kohlberg Kravis Roberts & Co. executives Scott Stuart and Ned Gilhuly. Sageview is looking to raise about $1 billion from pension funds and similar investors, the presentation said.

Sageview, based in Greenwich, Connecticut, and Palo Alto, California, would get yearly fees as an adviser and would also invest about $100 million of its own. Ruth Pachman, a spokeswoman for Community Bancorp, declined to comment.

Community Bancorp will look to buy three or four banks in the next three years and will be run by Paul Murphy, the presentation said. Murphy built Houston-based Amegy Bank into a $12.3 billion-asset lender over more than a decade, and it’s now owned by Salt Lake City-based Zions Bancorporation.

“We’re pleased with the Oregon decision,” Murphy said in an interview. He declined to comment further as the group is still raising capital and in a “quiet period.”

Spokesman James Sinks at Oregon’s Treasury said the state is still negotiating its commitment, and declined elaborate.

Calpers Presentation

After the credit crisis ate into private-equity returns, pension managers started looking for ways to trim fees and boost returns. The California Public Employees’ Retirement System, the largest U.S. public pension fund, said in a Feb. 16 presentation that one of its goals is to increase its “co-investments” in transactions alongside money managers. That kind of structure could give the pension fund an actual stake in firms purchased, rather than the private-equity firm’s buyout fund, according to the people.

Known as Calpers, the pension fund plans to “explore unique structures with select general partners,” according to the presentation. The fund’s investment portfolio was valued at $203.3 billion as of Dec. 31, according to the Calpers Web site. Spokesman Brad Pacheco didn’t respond to a request for comment.

Regulators have been debating how much leeway to give private buyers of failed banks on concern that they’re more likely to put federally insured deposits at risk, or will look to flip the bank for a quick profit.

Longer Horizon

Private-equity managed funds typically promise they’ll return funds to their investors in about 10 years. Pension funds are aiming to fund retirements that are decades away and thus can hold on to investments longer, which would help ease the FDIC’s concern, said one of the people.

Investing in distressed banks doesn’t always pay off, as the U.S. Treasury Department learned with the Troubled Asset Relief Program. At least 60 lenders skipped some of their promised dividends to the TARP fund, according to SNL Financial, and a $2.33 billion stake in CIT Group Inc. was wiped out last year when the lender went bankrupt.

FDIC guarantees may soften the risk of investing public pension money in distressed banks, according to one of the people. When the FDIC sells a failed bank, it typically shares a portion of the loan losses.

“Financially sophisticated people do not assume that banks have recognized all of their real estate losses,” Kramer said, adding that it can still be a bad deal if a buyer overpays for a deposit franchise or if loans perform worse than expected. “We are in the early innings for commercial real estate.”

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net .

CRE Price Discovery: ‘On the Edge’ Banks Facing Writedowns After FDIC Loan Auctions

Bloomberg News

March 8 (Bloomberg) -- A Federal Deposit Insurance Corp. plan to auction more than $1 billion in assets seized from failed banks next month, including a loan to build a W Hotel in Atlanta, may trigger writedowns that weaken lenders nationwide.

Almost half of the loans were originated by Silverton Bank N.A., whose collapse last May was the biggest in Georgia history. Community banks that joined Silverton in providing $80 million for the 237-room hotel and condominium complex, as well as backing for 39 other projects, could be forced to write down their stakes to reflect sale prices.

The auctions may have wider repercussions. Of the $50.4 billion in loans seized from failed banks currently held by the FDIC, 63 percent involve participations by other lenders, according to data provided by agency spokesman Greg Hernandez.

“These banks can’t believe that the regulator they pay to protect them is going to sell these loans to someone who can flip them and cause them serious losses,” said Robert Reynolds, a lawyer at Reynolds Reynolds & Duncan LLC in Tuscaloosa, Alabama, who represents 25 lenders that took part in financing the W Hotel. “Our banks just cannot believe they’re being treated in a way that ultimately hurts the FDIC’s insurance fund, because some of them are right on the edge.”

Bank Failures

A total of 140 banks failed last year, and FDIC Chairman Sheila Bair said the number may be higher this year. It stands at 26 as of March 6. The agency said on Feb. 23 that 702 banks were on its “problem” list as of Dec. 31, up from 552 at the end of the third quarter. The FDIC’s insurance fund had a deficit of $20.9 billion at the end of the year.

“This whole thing is a mess waiting to happen across the country,” said Geoffrey Miller, a professor of securities law at New York University and director of the Center for the Study of Central Banks and Financial Institutions.

“Unlike the subprime mortgage problems, which hit mostly bigger financial institutions, the commercial real estate crisis is going to hit mostly smaller and regional banks,” Miller said. “It was common for them to make these loans and buy participations. It’s a systemic problem that the FDIC has to deal with.”

That view was echoed by John J. Collins, president of Community Bankers of Washington in Lakewood, Washington. Some banks in his state have expressed concern that they may have to take writedowns as a result of the FDIC sale of seized loans in which they participated, he said.

“We have a number of banks teetering on the edge, and we don’t need this problem,” Collins said in an interview.

‘Maximize’ Recovery

The FDIC is “required by statute to maximize its recovery on receivership assets,” Hernandez, the agency spokesman, said in an e-mail. “This is achieved through a broad, competitive bid process.”

A $416 million package of Silverton assets being auctioned for the FDIC by Deutsche Bank AG includes $254 million of loans for commercial real estate projects such as the W Hotel in which the bank sold participations, according to Deutsche Bank’s announcement of the sale. They range from providing $752,000 in financing for convenience stores in Los Angeles to $46 million for a Le Meridien Hotel in Philadelphia. Bids are due April 12.

The FDIC will entertain offers for individual loans or the entire Silverton portfolio, retaining a 60 percent interest to benefit from future profits, Hernandez said.

The agency is separately auctioning $610.5 million of overdue loans seized from failed U.S. lenders, including $85.3 million in Silverton assets and $220.2 million issued by New Frontier Bank in Greeley, Colorado. That sale is being handled by New York-based Mission Capital Advisors LLC. The deadline for bids is April 6.

W Hotel

The loan for construction of the W Hotel in downtown Atlanta was made in April 2008, a month after the collapse of Bear Stearns Cos., according to Reynolds. The developer of the property is Atlanta-based Barry Real Estate Cos., which owns commercial projects in Atlanta, Dallas, Orlando, Florida and Birmingham, Alabama.

The hotel, managed by Starwood Hotels & Resorts Worldwide Inc., opened in January 2009. It offers amenities such as a Bliss Spa and a service for obtaining skybox seats at Atlanta Braves baseball games.

Silverton’s Specialty Finance Group LLC, which made the loan, notified the developer that it was in default, according to a letter dated April 16.

The hotel is operating at “close to 60 percent” occupancy, said Hal Barry, chairman of Barry Real Estate. The occupancy rate for luxury hotels nationwide in the fourth quarter of last year was 60.6 percent, according to Smith Travel Research Inc. in Hendersonville, Tennessee. There are also 76 condominiums in the complex, of which one has sold, he said. He declined to comment about the status of the loan.

Servicing Rights

A sale of Silverton’s $23 million share of the financing at half its book value could force participating banks to take more than $30 million in writedowns, Reynolds said.

The sale of loans from failed banks in 2009 brought on average 43 percent of their book value, according to an FDIC summary. Non-performing loans, those on which the borrower has defaulted or there is little prospect of repayment, were sold for 26 percent of their book value on average.

Reynolds has proposed that the FDIC sell Silverton’s interest in the project separately from its lead role in servicing the loan. That would enable the participating banks to buy the servicing rights and seek a long-term workout, avoiding any immediate writedowns. Selling the servicing rights along with Silverton’s portion of the loan, which give the owner the ability to restructure or foreclose on a loan, could encourage short-term investors, Reynolds said.

‘Decreases’ Value

If the loan is sold to a buyer who restructures it at less than book value or forecloses on the property, participating banks would have to write down their stakes, said Russell Mallett, a partner at PricewaterhouseCoopers LLP in New York who specializes in bank accounting. Absent a restructuring, banks have flexibility in how they value loans, he said.

“This is not a perfect real estate development, but it could work its way out of its problems if they get more funding and we’re patient,” said Ralph Banks, executive vice president of Merchants & Farmers Bank of Greene County in Eutaw, Alabama, which owns less than $1 million of the loan.

That view was supported by executives at two other lenders that bought participations who asked not to be identified because their banks’ roles as owners of the W Hotel loan haven’t been disclosed.

The FDIC has a policy of not splitting servicing rights from loan ownership because it “decreases the value of those assets,” said Hernandez, the agency spokesman.

‘Deal With Themselves’

Reynolds said the banks he represents may bid for Silverton’s share of the W Hotel loan if they can come up with the capital in order to stave off writedowns. Some of the lenders are already in financial trouble, he said, declining to identify them. One that participated in the loan, Florida Community Bank in Immokalee, Florida, failed on Jan. 29.

Silverton, a wholesale bank based in Atlanta with no consumer operations, was owned and overseen by more than 400 community lenders in the region. It was founded in 1986 and provided banking services, including wire-transfer systems, bond trading and credit-card operations, to about 1,400 institutions in 44 states.

Reynolds said the banks that owned Silverton, some of which had representatives on its board, never imagined it would fail.

“My clients had a long, successful record with Silverton,” Reynolds said. “When they signed their participations, they felt they were signing a deal with themselves because they all owned the bank. We all thought this was a way to diversify risk.”

Silverton Failure

The bank’s troubles began in early 2007, when it changed from a state to a national charter so it could accelerate its growth, according to a report by the Treasury Department’s Office of Inspector General, which reviews failures of banks regulated by the Office of the Comptroller of the Currency.

Silverton’s commercial real estate lending rose to $1.2 billion at the end of 2008 from $681 million at the end of 2006, the report said. The bank had $4.1 billion in assets when it failed last year, and the FDIC said the closing will cost its insurance fund $1.3 billion.

“The board and management either chose to ignore or failed to acknowledge the indicators of a declining real estate market,” the inspector general’s report said.

Defaults Double

Real estate loans at U.S. banks that are at least 90 days overdue or that are expected to default almost doubled in 12 months to 7.1 percent, according to December FDIC data. Non- performing loans for construction and development rose to 16 percent from 8.6 percent.

“This is a situation the FDIC is going to face more, since the number of bank failures is going up,” said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine. “The FDIC is not in the business of managing loans, so they do have to sell them. But they also have to look at the bigger picture and take a global approach by liquidating those assets without hurting the banks that bought participations.”

To contact the reporter on this story: James Sterngold in New York at jsterngold2@bloomberg.net

Friday, March 5, 2010

Four U.S. Banks Shut Down as Failure Count This Year Reaches 26

March 6 (Bloomberg) -- Regulators shut banks in Maryland, Illinois, Florida and Utah, pushing the number of U.S. failures to 26 this year and placing more pressure on the Federal Deposit Insurance Corp. to dispose of a growing pile of toxic assets.

The FDIC was unable to find buyers for two banks -- Centennial Bank in Ogden, Utah, and Waterfield Bank of Germantown, Maryland -- according to statements posted on the agency’s Web site. In the largest of yesterday’s failures by assets, Boca Raton, Florida-based Sun American Bank was purchased by First-Citizens Bank & Trust Co.

“South Florida is a great market for our company, especially with our focus on individuals, small- to mid-sized businesses and the medical community,” Frank B. Holding Jr., chief executive officer of First-Citizens, said in a statement.

Lenders are collapsing at the fastest pace in 17 years amid losses on residential and commercial real estate loans made at the height of the market. U.S. “problem” banks climbed to the highest level since 1992 in the fourth quarter and FDIC Chairman Sheila Bair warned Feb. 23 that the pace of failures will “pick up” and exceed last year’s total of 140.

The FDIC sold $1.81 billion of notes yesterday that are backed by mortgage securities collected from failed banks. It may issue $4 billion of bonds this month, people familiar with the matter said last week.

Sun American is First-Citizens’ second acquisition through the FDIC’s resolution process this year and fourth overall, according to the bank’s statement. The Raleigh, North Carolina- based lender bought Sun American’s $443.5 million in deposits and shared losses with the FDIC on $433 million of assets.

Illinois Transaction

Heartland Bank and Trust Co. of Bloomington, Illinois, will pay a 3.61 percent premium for Bank of Illinois’s $198.5 million in deposits, after state regulators closed the Normal, Illinois- based lender. The FDIC will share losses with Heartland on $166.6 million of assets, according to the statement.

Zions Bancorporation, the lender that operates banks in 10 western U.S. states, was named to take over some operations of Centennial Bank. Utah regulators closed Centennial and put Zions in charge of direct deposits related to government benefits like Social Security. Zions has said that similar arrangements in the past have steered banking customers its way.

The Office of Thrift Supervision closed Waterfield Bank. The bank’s $155.6 million in assets and $156.4 million in deposits will go to a newly chartered lender that will stay open until April 5, the FDIC said.

The FDIC said last month it had included 702 banks with $402.8 billion in assets on the confidential “problem” list as of Dec. 31, a 27 percent increase from the third quarter.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net .

The Changing CRE Landscape

CRE Financial Advisors is not so sure that commercial real estate is very close to turning the corner. The banking landscape is being transformed and consolidated at a rapidly increasing pace and CRE assets are at the heart of the current and future financial turmoil. The good news is that CRE innovation is emerging from the ashes of commercial finance and transforming a rapidly changing and treacherous landscape.

As of the end of 2009, over 700 U.S. Banks were included in the FDIC’s Problem Bank List. There were 140 bank failures in 2009 and 20 as of the first two months in 2010. By the end of 2009 the FDIC entered into 94 loss sharing agreements covering assets totaling $122 billion. The bulk of failed bank assets have been placed into these structures.

"Loss Sharing" is a public/private partnership between the FDIC and a healthy bank where the FDIC covers an amount of the losses incurred by a bank acquiring failed bank assets in exchange for possible upside to be shared with the FDIC that might result from the acquiring bank's expert asset management and improved economic conditions.

A loss sharing industry sprung up in 2009 as a response to complicated and sensitive set of procedures regarding the FDIC oversight of bank failures. It is our opinion there may be in excess of 200 additional bank failures in 2010 alone and the market for assets under Loss Sharing agreements will exceed $300 billion, cumulatively.

CREFA brings skills and experience to the loss sharing industry in the following areas:

Asset Acquisition and Due Diligence
Asset Management
FDIC Submissions, Processing, Auditing and Compliance
Data and Document Management Systems
CRE New Media and Communication Tools

We can be reached at: Los Angeles 626.817.3020 Atlanta 404.248.9915 Miami 305.672.1699

Thursday, March 4, 2010

FDIC Preps Another Round of Structured Offerings

Feb 26, 2010 - CRE News

FDIC is preparing another round of structured offerings of distressed bank loans.

The agency, which has already sold $14.8 billion of loans through 10 such offerings, is gearing up another two. That's on top of the three offerings that are winding their way through the market: two pools of mixed-quality residential mortgages with a balance of some $1.5 billion offered through Stifel Nicolaus, and $420.1 million of hotel construction loans through Deutsche Bank.

Up next is a $610.5 million portfolio of residential acquisition, development and construction loans that Mission Capital Advisors is handling. And after that, the agency is expected to offer $1.8 billion of commercial acquisition, development and construction loans and conventional commercial mortgages through Barclays Capital.

Mission Capital appears to be further along than Barclays with its loan offering, in that it has started soliciting prospective investors. Its offering is comprised of 815 loans that were taken from 19 receiverships. The biggest contributor is New Frontier Bank, a Greeley, Colorado, bank that failed last April.

The portfolio has collateral concentrations in Colorado (33.8%), California (11.8%) and Utah (8.5%.) Roughly 20% of the loans are still classified as performing. And all were originated since 2006 and have a weighted average coupon of 7.8%.

FDIC and Mission Capital have not yet ironed out the offering's exact structure. However, a tentative bid deadline of April 6 has been set.

But in three of its four most recent transactions, the agency sold 40% stakes, keeping the remainder and provided 50% financing at a zero coupon.

For all of its pending deals, it will likely offer a similar structure. It may also consider selling only a 20% stake that wouldn't be subject to its generous financing.

Mission Capital's pending offering would be its first. It was one of 14 advisers tapped by the agency last November to handle structured sales on its behalf. It is also one of five firms that are handling what the agency terms "cash" sales, or whole-loan sales.

So far, Barclays Capital has been the most active of the agency's structured-sales advisers, handling the sale of $6.1 billion of assets in two portfolios, one of which contained $4.5 billion of Corus Bank assets. Keefe, Bruyette & Woods has handled the sale of three portfolios totaling $2.4 billion.

Tuesday, March 2, 2010

FDIC to Tap Securitization Market

MARCH 2, 2010, 5:03 P.M. ET

By ANUSHA SHRIVASTAVA, Wall Street Journal

NEW YORK—The Federal Deposit Insurance Corp., seeking to rid itself of assets from failed banks, is tapping the securitization market with three new guaranteed deals totaling $4 billion.

The first of these deals, expected to be sold this week, is a $1.8 billion offering, according to documents obtained by Dow Jones Newswires.

The offerings pool assets held by failed banks that the agency has seized to protect depositors, including Franklin Bank in Houston and Corus Bank in Chicago. The FDIC took over Franklin in November 2008 and Corus in September 2009.

Over the past two years, the FDIC has had to take over 165 financial institutions brought down by nonperforming commercial and residential loans. For more than a year, the banking regulator has been selling some of the loans through a vehicle structured as a public-private partnership.

Essentially, in these deals, the buyer pays 20% of the assets' value and tries to work out the loans by reducing the interest rate, extending the maturity, writing off some principal or getting buyers to put up equity. Once the loans start to perform, the FDIC, which retains 80% ownership, shares in the returns. The arrangement allows the FDIC to reduce its risk.

Assets from the Corus and Franklin banks—which include residential, commercial and construction loans—in addition to other failed bank assets have been pooled into the three notes totaling $4 billion, according to the documents.

These notes are wrapped with an FDIC guarantee and backed by the U.S. government.

The deals, offered via the private-placement market, are led by Barclays Capital. The BarclaysPLC unit declined to comment, and the FDIC declined to confirm or deny that it was marketing a deal at all.

The first offering is a structured sale of previously issued nonagency residential-mortgage-backed securities. The second deal is of Corus Bank assets, and the third is of Franklin Bank loans.

Market participants say the banking regulator, which is expected to take over many more banks this year, is looking at various options to fast-track asset sales.

"The FDIC can't sell all the assets they have through the public-private partnership transactions," said Jesse Litvak, managing director and trader in the mortgage and asset-backed group at Jefferies & Co. "This is their way of diversifying their exit strategy."

—Prabha Natarajan contributed to this article.

Write to Anusha Shrivastava at anusha.shrivastava@dowjones.com

When Georgia Banks Fail, Small Businesses Suffer

KATHY LOHR, NPR

March 2, 2010

President Obama was in Savannah, Ga., on Tuesday, as part of his Main Street tour to encourage economic growth. Georgia has been hit hard during the recession, as bank failures have skyrocketed.

More than 30 banks in Georgia have shut down since 2008 — that's higher than in any other state. As a result, many small businesses are struggling because they can't get loans. Some people in Georgia, and in Congress, say it's time to help these smaller banks and the communities where they are located.

When Real Estate Growth Plummets


Henry County, about 35 miles south of Atlanta, was a booming place. It was one of the fastest growing counties in the country. Its population nearly doubled in the past decade to about 200,000.

"Property values were at their highest, and everyone was in a frenzy to build and to develop," says Hans Broder, CEO of Enterprise Banking Co. in McDonough.

Broder had retired from banking, but in 2005, he decided to buy a community bank. When credit got tight and loans dried up, houses here stopped selling, leaving empty subdivisions and tons of foreclosures.

In Georgia, a lot of new banks made development loans because of the growth. When both the residential and commercial real estate markets plummeted, banks all over began failing — including two in this county.

"I think as we all look back, there was a greed factor in some of the decisions that were made, and we were all caught up in it. I don't think regulators saw it coming either," Broder says. "But after so many years of success, we sort of let our guard down. And there's a price to pay for that, and we're paying it."

In the Atlanta metropolitan area, which is Georgia's economic engine, nearly half of the banks are now under federal or state regulatory orders to raise more capital. Broder needs to come up with $5 million — a difficult proposition.

As a result of the pressure, most troubled banks are not making new loans, but are restructuring their old ones and trying to build reserves. That makes it tough on smaller communities.

Local Impact

Downtown Locust Grove is a quaint couple of blocks next to a railroad track that runs along Georgia Highway 42. Among the shops here is Heather Bledsoe's store, Heather's Flowers, which stocks flowers and consignment wedding dresses.

Locust Grove got several hundred thousand dollars of federal stimulus money for streetlights, brick walkways and building facades. But, Bledsoe says, businesses here are not getting loans. She started her store with her own savings last spring, renting space downtown. When the building came up for sale, Bledsoe wanted to get a loan to buy it, but her bank had failed and others offered no help.

"We tried a couple other banks, even our own personal banks, and they were like, 'Yeah, don't even — there's no way to even apply because you're not going to get it,' pretty much is what they told us when we went in there," Bledsoe says.

She was turned down, in part, because her business was so new. But she says it's new businesses that need the loans.

"Sometimes it just kind of slams a door in your face when you are trying to make something happen," Bledsoe says.

Banking Regulations To Blame?

The list of troubled banks here and across the country continues to grow. The Federal Deposit Insurance Corp. recently announced that the number of problem banks nearly tripled at the end of 2009 to just over 700. Smaller lenders, in particular, are struggling.

Some blame the high number of failures on strict federal accounting regulations for troubled banks. In part, they require banks to reappraise the real estate underlying their loan at current, depressed prices and take a loss on those loans. That reduces banks' capital and their ability to make new loans.

"Part of the drying up of credit in the marketplace is directly because of the regulators and the pressure they're putting on banks actually not to loan. That becomes a self-fulfilling prophecy and protracts the recession," the Republican says.Georgia Sen. Johnny Isakson is lobbying for changes.

Some accounting rules were suspended during the savings and loan crisis in the 1980s, and Isakson says they could be suspended again.

Republican Rep. Lynn Westmoreland would like community banks to get additional time and federal financial help to recover.

"And then if they need a cash infusion of, let's say, $10 million, let the government say, 'OK, if you raise half of it, we'll loan you half of it and give you an opportunity, give you 18 months to turn your bank around,' " Westmoreland says.

Loosening Restrictions May Not Be The Answer

But some industry analysts say this is not the time to loosen restrictions.

White says banks can't just hope that their bad loans will suddenly turn into good loans."It's the basic mission of federal and state bank regulators to make sure banks are sound — and every failing bank has always complained if they just gave them a little more time, things would turn around," says Alan White, a law professor at Valparaiso University in Indiana and an expert in banking regulation.

"Whether they're bad subprime loans or bad construction loans, bad loans are bad loans. And if those bad loans are what is backing ordinary people's savings, the regulators have to act," he says.

Community banks are vital to small towns — they make the loans that create many new jobs. But given the current conditions, economic experts say it's likely two dozen more community banks will fail in Georgia this year.

Monday, March 1, 2010

February 2010 Is Over and the Failed Bank Statistics Are In

Posted 3.1.2010

Bad Weather Slows the Bank Failure Pace?

February 2010 came to a close and only 7 US banking institutions were "shuttered" during the month involving a total of close to $5 Billion in combined assets (compared to January 2010 when 15 US banking institutions were closed involving a total of $10.9 Billion in combined assets). The average size of closed institution in February was $710.49 Million. The FDIC entered into loss-share transactions (an FDIC arrangement with acquiring bank for FDIC to assume a share of future loan losses) in 6 cases covering a total of almost $4.4 Billion of failed bank assets or nearly 90% of the $5 Billion failed asset total. The February cost to the Deposit Insurance Fund ("DIF") was $1.2 Billion.