Review of Bank Closings

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Review of Bank Closings

Dear Jim,

After taking a break over the Easter holidays, the FDIC got busy again, closing nine banks between 4/9/10 and 4/16/10. Eight of the nine were closed this week.

Collectively, these nine banks had reported assets of about $6.84 billion and deposits of about $5.7 billion. The FDIC estimates the cost of the closings will be about $1.12 billion, about 19% of deposits. Based on that estimate, the bank’s assets are really only worth about $4.59 billion and had been over-stated by 49%.

The FDIC also had to enter into loss-share agreements with respect to $4.06 billion of assets taken over by the acquiring banks. That indicates its eventual losses could greatly exceed present estimates. Since the beginning of this crisis, the FDIC has entered into loss share agreements with respect to about $141.3 billion in assets.

As has often been the case in recent closings, the larger banks were the worst offenders in terms of over-valuation. City Bank of Lynnwood, Washington, had reported assets of $1.13 billion that, based on the FDIC’s loss estimate, are really only worth about $697 million. Bank management had over-valued them by about 62%.

Tamalpais Bank of San Rafael, California, had reported assets of $628.9 million that, by the FDIC’s loss estimate, are really only worth about $406.5 million. They had been over-valued by about 55%.

The largest of the banks closed, Riverside Bank of Florida, Fort Pierce, Florida, had reported assets of $3.42 billion. Based on the FDIC’s loss estimate, they are really only worth about $2.27 billion and had been over-valued by about 51%.

In each of these cases, a look at the bank’s balance sheet would have suggested it was very well capitalized. In reality, each was insolvent and had to be closed at a great cost to the FDIC.

Respectfully yours,
CIGA Richard B.

Source: fdic.gov