Friday, September 5, 2008

This Week in Bank Failures

Tonight’s FDIC takeover target was Silver State Bank of Henderson, Nevada, one of the largest suburbs of Las Vegas. Its 13 locations in Nevada are being taken over by Nevada State Bank. Nevada State Bank is paying a 1.3 percent premium to acquire the deposit accounts. It is also acquiring some cash and securities. The FDIC will liquidate the other assets later.

Silver State Bank merged with Choice Bank of Arizona earlier this year. The four locations in Arizona, with accounts of former Choice Bank customers, are being taken over by National Bank of Arizona.

Silver State Bank recently reported $2 billion in assets. It was hurt, it said, by the poor performance of construction loans in particular.

There is a political connection in the Silver State story. Andrew McCain, the son of presidential candidate John McCain, was a director of the bank and a member of its audit committee until July 26.

Then last month, two of the bank’s founders, one serving as CEO and the other as chairman, resigned just before the latest earnings report was released. The company’s stock, valued at $14 per share at the beginning of the year, fell to $9 in March, then declined rapidly, falling below $1 on August 1 and ending the day today at 56 cents.

The FDIC pattern of taking over just one bank per week strongly suggests that it has only enough personnel to assemble one bank takeover team. It will surely need to create a second team to stay on top of the pace of bank failures going forward, but civil service rules prevent it from filling key bank examiner positions with members of the general public. Instead, these positions can be filled only by U.S. government employees who have years of experience in related civil service jobs.