Seizure of Online Bank Could Be Sign of Things to Come

WASHINGTON – The closure by regulators of the $2.5-billion online bank NetBank may be the first of other seizures to come, according to analysts. After closing just one institution between June 2004 and September 2007, problems in the mortgage market and a dearth of buyers for troubled assets are likely to mean NetBank won’t be alone. "We absolutely believe that the cycle has begun. We haven't had a failure for quite some time … but we believe we could see several more failures between now and into the first quarter," Damyon Mouzon, the president of Lace Financial Corp., a Frederick, Md., rating firm that tracks troubled institutions told American Banker. "With the liquidity drying up, … that was the final straw, really, and institutions are now going to have to come clean and say what they really believe they and their loans are worth in the marketplace. That's going to be a real shocker for some institutions." Alpharetta, Ga.-based NetBank had a significant number of bad loans; the FDIC is estimating it will cost the fund $110 million.