Friday, February 10, 2012

This Week in Bank Failures

The long-awaited mortgage settlement arrived with a whimper on Thursday, with 49 states and 5 banks on board, but covering only perhaps 5 percent of the banks’ potential mortgage-related legal liabilities. Far from the blanket immunity that banks were seeking, the terms of the settlement resolve only a subset of regulatory and government enforcement actions. Notably, banks still face a wave of legal actions from mortgage customers and purchasers of securities based on mortgages. In addition, bank employees may still face criminal charges and removal orders from regulators for any individual misconduct. The settlement is still a good deal for the banks, as it removes the threat of potentially severe sanctions by banking regulators.

Participating banks were Bank of America, Ally Financial, Citigroup, JPMorgan Chase, and Wells Fargo. Nearly half of the cost of the settlement will be paid by Bank of America, and nearly half of the payout will go to recipients in California.

Even the scaled-back mortgage settlement could face legal challenges, with some observers saying it still appears to exceed the statutory authority of the participating states.

For now, the announcement of the settlement could unleash a new flood of regulatory inquiries and subpoenas covering the many areas that turned out to be excluded from the settlement. The first of these was unsealed today in Massachusetts, where securities regulators are seeking documents from Bank of America about specific mortgage-backed securities it sold in 2007.

All eyes are on Greece again, as the country missed a deadline for qualifying for international relief. Greece will continue efforts to agree on a budget over the weekend.

With Greece in political turmoil over its finances, there are rumblings in Portugal about tightening its budget still more, in the hope of avoiding a similar fate. It is Italy that is worrying loudest about the latest developments in Greece, though, and that country’s banks were the focus of S&P downgrades today.

The OCC closed two small banks tonight, with combined deposits of $261 million.

  • SCB Bank, Shelbyville, Indiana, 4 locations. Real estate, development and construction loans, non-performing loans, and foreclosures were excluded from First Merchants Bank’s acquisition of the assets.
  • Charter National Bank and Trust, Hoffman Estates, Illinois, 2 locations. It was another in an ongoing series of Chicago-area bank failures.

In both cases, the deposits and assets of the failed bank were acquired by an in-state bank.