Friday, November 5, 2010

This Week in Bank Failures

Wilmington Trust posted a quarterly loss of $370 million, mostly from sagging commercial real estate in the bank-heavy Wilmington, Delaware, metro area. It may have found an answer, though, in a deal to be acquired in a stock swap by M&T bank. Wilmington Trust shareholders will get approximately 2 M&T shares for every 39 shares they hold. The deal will move M&T into the top 20 in the United States in size of deposits, with 800 branches, including some in Ontario. The deal is subject to regulatory approval and won’t close until next year.

Separately, Allied Irish Bank, which owns a 22 percent stake in M&T, is considering selling its shares. It may need the cash to avoid a takeover by the Irish government.

The divided Congress that follows from this week’s U.S. elections virtually eliminates any chance of further bank rescues. Even if the whole banking system were facing a sudden difficulty, it is hard to imagine that the House Republicans could agree among themselves, or with Democrats, on any quick fix for the problem. This creates possibly the best opportunity for shrinking the size of the banking system, if some of the giant banks sell assets and close operations to avoid financial collapse. To date, the largest banks have only grown larger, in spite of their financial woes.

Tonight’s bank failures started with K Bank, which had $500 million in deposits and 7 locations, mostly in Baltimore County, Maryland. It was one of the larger banks in the county, and the largest bank to fail in Maryland in the current run of bank failures. It was founded in 1961 and was known as Key Bank prior to 2004. It had been reporting losses since 2008 as its commercial loans steadily deteriorated.

M&T bank is acquiring the deposits and assets. It will be keeping the former K Bank branch offices open for just one week.

Three small state-chartered banks, each with a single location, failed on the West Coast.

  • Western Commercial Bank, Woodland Hills, California, with $101 million in deposits. First California Bank paid a 0.5 percent premium for the deposits and is also acquiring the assets.
  • First Vietnamese American Bank, Westminster, California, with $47 million in deposits. Local bank Grandpoint Bank is acquiring the deposits and assets.
  • Pierce Commercial Bank, with $194 million in deposits and one location in Tacoma, Washington. Heritage Bank paid a 1 percent premium for the deposits and is also acquiring the assets.

A week ago, also in Washington State, The Union Credit Union was closed by state regulators. It had $12 million in assets and 3,000 members. The NCUA transferred the member accounts to two other credit unions.