Thursday, May 21, 2009


It wasn’t a case of Wall Street rushing to the FDIC’s rescue. The BankUnited failure will still cost the Deposit Insurance Fund about $5 billion. But at least the FDIC will not have to shut down all the branches and write checks to a million depositors.

BankUnited was the largest bank based in Florida, with $12.8 billion in assets, $8.6 billion in deposits, and 86 offices. Based on its net worth, though, it was the smallest bank in Florida, with a net worth that had been in negative territory for months. It is being acquired by a Wall Street investment group setting up a new bank for the purpose, which will also be called BankUnited. The new owners are putting in $900 million in new capital. It is not clear that the new capital will be enough for a bank that was recently estimated to be $1.4 billion in the hole, but the FDIC has concluded that letting them give it a try would be less costly than winding down the bank’s operations.

It is somewhat unusual for outside investors to take over a failed bank, but the FDIC hopes it can repeat this process, and promises to publish guidelines later this year so that potential investors will know what to expect. The FDIC has overseen 34 bank failures already this year, and many of the banks that were financially strong enough to acquire a struggling or failed bank have already done so.

Some of the bidders in the investment consortium had previously been reported to be bidding against each other, so it may be that the winning bid was a combined bid formed after the initial bids all fell short.

The new BankUnited is acquiring 96 percent of the old BankUnited’s deposits and 99 percent of its assets, with the FDIC providing a substantial degree of loss protection on most of the assets.

The failure of the old BankUnited has been attributed by observers to a pattern of high-risk real estate lending in a declining Florida economy. The bank acknowledged in a regulatory filing this month that its accounting controls were not adequate and that it was having trouble determining the value of some of its assets.

Most bank seizures are conducted on Fridays, allowing the weekend to fix any technical glitches that come up, but with some larger banks, the FDIC seems to prefer not to take the risk of waiting until Friday, and so the BankUnited closure tonight was not unexpected.