Community Bank System (CBU) in DeWitt, N.Y., will take a $6.9 million loss in the fourth quarter after selling collateralized-debt obligations and other securities in response to concerns over the Volcker Rule.
The $7.3 billion-asset company said Tuesday that it lost $15.5 million in the sale of trust-preferred CDOs. The company also eliminated $226.4 million of Federal Home Loan Bank advances and sold $417.6 million of Treasury securities classified as held to maturity.
Community Bank System said it sold the securities to comply with its interpretation the Volcker Rule, which aims to ban proprietary trading. "The company believes that the final rules... require banking entities to divest certain disallowed securities, including its holdings of trust preferred CDOs," Community Bank System said in a press release.
The final version of the Volcker Rule, released earlier this month, has prompted a backlash from banks and trade groups who argue that restrictions on CDOs and collateralized-loan obligations could force banks to shed assets at big losses. The American Bankers Association filed a lawsuit last week to challenge the rule, arguing that the restrictions could cause "real, imminent and irreparable" damage to community banks.
Community Bank System is at least the fifth bank to announce plans to sell securities to comply with the final rule, joining WashingtonFirst Bankshares (WFBI)in Virginia, Zions Bancorp (ZION) in Salt Lake City, BankUnited (BKU) in Florida and Cape Bancorp (CBNJ) in New Jersey.
"We are pleased to have efficiently executed the sale of the trust preferred CDOs and the simultaneous investment and debt actions which we believe are in the best interest of our shareholders," Community president and chief executive Mark Tryniski said in the release. "These actions serve to eliminate the uncertainties created by the Volcker Rule."