Friday, April 9, 2010

This Week in Bank Failures

The SEC on Wednesday voted to go ahead with rules for the securitization business. The securities that have been the backbone of the home mortgage and credit card businesses for the past decade are effectively unregulated, but that will change with the new rules that the SEC will be putting together. Some of the rules that are taken for granted in stocks, bonds, and bank loans, having to do with transparency, disclosure, and accurate recording of transactions, will then begin to apply to the securities that result from bank loans.

At least two of the recent bank failures have been tied to problems with investment in mortgage-backed securities. More, though, are related to the parallel world of loan syndications, an area that falls entirely under the jurisdiction of banking regulators. Banking regulators would do well to check into the initiatives that the securities regulators take with securitizations to see if any of them would also help avoid problems with syndications.

After taking the first weekend of the quarter off for a holiday weekend, bank failures did not come roaring back tonight. We did, however, see the first bank to fail in South Carolina since the 1990s.

The failed bank is Beach First National Bank, which had seven locations in Myrtle Beach and nearby beach towns in South Carolina. It recently had $516 million in deposits. It was obviously a bank in trouble. It had been operating under an OCC consent decree since November. Its dwindling home mortgage division finally shut down two weeks ago. On Monday it announced a $14 million charge that would be appearing in its 2009 annual report, a report that, as of today, still had not been completed. Also on Monday, the bank received a delisting warning from Nasdaq. That’s more trouble than you expect any bank management team to overcome, and you have to wonder if the new interim CEO could really do much more than show a brave face and try to make things look good.

The loan problems at Beach First National Bank paralleled those at other banks in resort locations, such as the recent bank failure in Key West and some of the banks in Las Vegas. The bank had its share of losses in residential mortgages, but the real problem was the commercial real estate, including a $4 million dollar yacht club that ended up listed for sale on the bank’s web site.

The deposits have been moved to Bank of North Carolina, which is also purchasing the assets. It is a significant expansion for Bank of North Carolina, which previously had 17 locations, all in North Carolina.