The stock market staggered today when the Securities and Exchange Commission (SEC) announced civil fraud charges against Goldman Sachs and one of its executives for misrepresenting mortgage-backed securities it sold early in the credit bust. The securities in question were being dumped by a hedge fund that thought they were likely to go bad, but Goldman Sachs described the source of the securities in quite different terms. Investors lost more than $1 billion on the securities.
The FDIC board is extending its expanded deposit insurance for non-interest-bearing transaction accounts, mainly business checking accounts, through the end of the year. Most likely, they will decide later to extend it through next year.
The FDIC is floating a draft of its scorecard for risk-based deposit insurance premiums. The risk-based premiums, as proposed, would apply only to the larger half of large banks. Banks with assets less than $10 billion would continue to pay simple deposit insurance premiums based mostly on the amount of deposits. Some version of the risk scorecard is likely to go into effect at the beginning of next year.
The Harleysville signs are gone forever. After nervous months of waiting, the Harleysville National Bank acquisition by First Niagara ultimately won regulatory approval, and closed last weekend. First, though, Harleysville National Bank spun off Cornerstone Companies, a wealth management company that was part of its mid-decade spree of acquisitions. It was the cost of those acquisitions that depleted the capital of Harleysville National Bank and led it to be sold in distress. Prior to that turn of events, Harleysville National Bank had been one of the survivors of the banking industry, expanding from its original 19th-century location in Harleysville, Pennsylvania, to become the largest bank based in the Philadelphia suburbs. First Niagara is eliminating about 300 jobs at the former Harleysville National Bank headquarters, but so far does not have any plans to eliminate banking locations.
TD Bank, which was mentioned as a potential bidder in two previous Florida bank failures, bought the assets of three failed Florida banks tonight. The largest was Riverside National Bank of Florida which had $2.76 billion in deposits. The other two banks, First Federal Bank of North Florida and American First Bank had combined deposits of about $400 million. TD Bank, though concentrated mainly in the Northeast, has long had a significant presence in Florida, and is expanding that presence with the new acquisitions.
Based on assets, Riverside National Bank of Florida was recently the 7th largest bank based in Florida. It had 58 locations mainly along the east coast of Florida, and its impending failure had been a subject of open discussion in Florida banking circles for months, with several large banks rumored to be considering the acquisition.
The bank was founded in 1982 and initially operated in a trailer. The founder resigned in January 2009, after a quarter in which the bank had seen the value of its assets decline sharply. Besides loan losses and real estate declines, the bank’s shares in Fannie Mae and Freddie Mac became worthless when those two mortgage financing companies collapsed. The founder then sold 4,000 shares of worthless stock in the bank to an insurance company that he controlled, netting $600,000, a transaction that was recently reversed by state insurance regulators.
First Federal Bank of North Florida had 8 locations concentrated in the northeast corner of the state. It faced loan losses related to the decline in real estate values, and had reported a loss of $23 million in 2009.
American First Bank had three locations in towns north of Orlando. Regulators last month had ordered it to raise capital immediately, after it reported an $8 million loss in the 4th quarter.
A bank that failed in Michigan tonight was probably the first bank failure in the current cycle to be directly tied to a population decline. The bank, Lakeside Community Bank, was based in Sterling Heights, Michigan, north of Detroit, in an industrial area that has seen perhaps the most rapid population decline of any place in the United States in the last decade. The bank had $52 million in deposits. It had experienced significant loan losses, but there was little indication that it had been mismanaged.
In a declining area, the FDIC could not find another bank interested in taking over the failed bank’s one location. Instead, it will send checks to the depositors beginning on Monday.
The first New England bank failure in nearly a decade occurred tonight. The bank, Butler Bank, had 4 locations and was based in Lowell, Massachusetts. It had $233 million in deposits. It had lost money in loans to poorly-located real estate development projects, and ended up owning 100 house lots from a planned residential development surrounding a golf course in Maine. Only a real estate investor could have saved the bank, which had more real estate assets than capital in the end. The failed bank was recently mentioned at the top of a very short list of troubled Massachusetts banks.
The deposits are being transferred to People’s United Bank, which is also purchasing the assets.
In Washington state, banks are failing at a rate of nearly one per month. The latest to fall is City Bank (no connection to the much larger Citibank), based in Lynnwood, Washington. It had 8 locations in the Puget Sound lowlands and $1 billion in deposits. On closing the bank, state regulators specifically blamed City Bank’s losses on construction loans.
Deposits are being transferred to another local bank, Whidbey Island Bank, which is also buying 62 percent of the assets.
California banking regulators closed Tamalpais Bank, which had seven locations in and around San Rafael, California, north of San Francisco. The bank had $488 million in deposits. San Francisco-based Union Bank, which previously had only a token presence in the North Bay area, paid a 2 percent premium for the deposits and is also purchasing the assets.
Tamalpais Bank had just this week filed its annual report for 2009, apparently in incomplete form, in which it noted that its capital levels were inadequate and it was in default on loans owed to other banks. The report also included a going-concern warning.
Across the bay in Oakland, regulators closed Innovative Bank. It had 4 locations and $225 million in deposits. Innovative Bank had raised some capital in recent months, but not enough to keep going. Los Angeles-based Center Bank is paying a 0.5 percent premium for the deposits and is also purchasing the assets. The failed bank had one location in Los Angeles in addition to its three locations in the Oakland area.
The FDIC estimates costs of $492 million for the Riverside National Bank of Florida closing and $323 million for the City Bank closing. The other six bank closings tonight are expected to cost it $169 million. With tonight’s closings, the tally of bank closings for the year has reached 50.