Friday, June 17, 2011

This Week in Bank Failures

One of the larger U.S. mortgage lenders that steered clear of the mortgage mess was ING Direct. It stayed out of trouble because it kept its loans simple and didn’t participate in the secondary mortgage market, keeping its loans on its own books. Despite this favorable business model, it was affected by the financial meltdown anyway. Its parent company, ING, received a Dutch government bailout in 2009 that required it to sell off many of its assets, and yesterday, ING announced that it was selling ING Direct USA to Capital One. The deal gives ING about $4 billion in immediate added liquidity, with the potential for more later if the 9.9 percent stake in Capital One that is included in the deal is still valuable when it is able to sell it. ING Direct operations in 9 other countries are not part of the transaction. Capital One will be keeping ING Direct USA’s orange ball trademark but will have to rename the bank by next year. Capital One, if it manages the transition well, will get a stable deposit base to support its U.S. credit card business. In its press statements, Capital One makes it clear it believes it got ING Direct at a discount price. In a presentation to investors, Capital One hinted it would scale back and wind down ING Direct’s mortgage business, which from its point of view is an accidental part of the deal.

A lower-level executive at the failed Colonial Bank was sentenced to 8 years in jail for her role in concealing fraudulent transactions between the bank and mortgage lender Taylor Bean and Whitaker. The bank and mortgage lender both collapsed amid this accounting fraud, from financial shortfalls that dated back to 2002. The top executive at Taylor Bean and Whitaker was convicted separately and will be sentenced next month. Three other executives and an analyst at Taylor Bean and Whitaker pleaded guilty to charges. The investigation began as a TARP inquiry before being turned over to the FBI. Colonial Bank’s holding company had submitted a fraudulent TARP application to begin with, and then Taylor Bean and Whitaker provided the bank with essentially stolen funds to make it appear that the bank qualified for the TARP funding.

U.S. bank failures resumed tonight after a week off.

Georgia banking regulators closed McIntosh State Bank, with four branches in small towns between Atlanta and Macon. It had $324 million in deposits. It had been open since 1964 and had been operating under a cease and desist order from regulators since 2009. Hamilton State Bank is taking over the deposits and purchasing the assets.

Florida state banking regulators closed First Commercial Bank of Tampa Bay, with two branches and $93 million in deposits. Stonegate Bank is taking over the deposits and purchasing the assets.