The FDIC is trying to work out new securitization rules that won’t lead to the collapse of the credit card business after the current grandfather clause expires September 30. It is a tricky tightrope to walk. Regulators have little to go on as they try to guess how hedge funds and other investors will react to the new structure of the industry on October 1. For the past decade, credit card debt has been funded mainly by hedge funds who buy securitizations of the debt from the issuing banks. The increasingly strained relationship between banks and investors led to the collapse of Advanta Bank a year ago and threatens several more credit card banks this year. Changes in accounting rules require new rules for securitizations that will be considerably less favorable to both the banks and the hedge funds.
There are more Illinois bank failures to come, and tonight’s was Midwest Bank & Trust Co., which recently had 26 locations around the Chicago suburbs, though it apparently had 23 at the time of its closing. It had $2.4 billion in deposits. Ohio-based Firstmerit Bank is taking over the deposits and purchasing the assets.
Midwest Bank & Trust Co. got $85 million in TARP funds, but needed to raise at least $125 million more to keep going. Huge losses in its securities portfolio wiped away most of its capital, leaving it unable to absorb the inevitable losses that it would take in its loans for Chicago-area commercial real estate.
The bank hired a new CEO last year in an effort to turn its fortunes around, but while it was able to gain some concessions from creditors, it had nowhere to turn to round up the new capital it needed. It recorded $400 million in losses in 2008 and 2009, while it saw its stock price fall from $12 to 40¢ per share.
There were three small bank closings, each with over $100 million in deposits:
- New Liberty Bank, one location in Plymouth, Michigan. Successor is local bank Bank of Ann Arbor.
- Southwest Community Bank, one location in Springfield, Missouri. Successor is Arkansas-based Simmons First National Bank.
- Satilla Community Bank, one location in Saint Marys, Georgia. Successor is Ameris Bank.