Over a year after being hit hard by the takeover of Fannie Mae and Freddie Mac, FBOP Corp.'s nine banks totaling $19 billion in assets were closed by the government Friday night.
The Federal Deposit Insurance Corp. announced a complex deal with Minneapolis-based US Bancorp, which will take over the operations of all nine institutions of the Oak Park, Ill., company starting on Saturday. U.S. Bank, the acquirer's largest subsidiary, will assume all of FBOP's $15 billion in deposits and acquire about $18 billion of its assets. However, the government is far from done bearing the cost of FBOP's demise as the FDIC agreed to share losses U.S. on $14 billion of those assets.
The failures included that of $7.8 billion-asset California National Bank in Los Angeles, FBOP's biggest subsidiary and one of Southern California's largest institutions with 68 branches. Overall, the nine failures were estimated to cost the government $2.5 billion. Its losses were somewhat mitigated by a tactic the FDIC has not used since the mid-nineties for resolving failed banks that were owned as part of a chain.
FBOP's collapse was set in motion last fall with the federal conservatorship of Fannie and Freddie.
With a high exposure to stock in the government-sponsored enterprises, the company, which had enjoyed growth from the purchase of sick banks in the eighties and nineties, was among several firms that had to reduce the value of preferred shares in the GSEs as a result of the conservatorship. Overall, the value of FBOP's investment portfolio in the third quarter of 2008 fell by $936 million, with a large portion of the decline tied to the GSEs.
But the problems did not end with that writedown. Over the past year, some of FBOP's largest institutions, including Cal National and $3.6 billion-asset San Diego National Bank, continued to suffer losses from commercial real estate and construction loans.
The other failed institutions included: $4.7 billion-asset Park National Bank in Chicago; $2.3 billion-asset Pacific National Bank in San Francisco; $326 million-asset North Houston Bank in Houston; $257 million-asset Madisonville State Bank in Madisonville, Tex.; $213 million-asset Bank USA in Phoenix; $118 million-asset Citizens National Bank in Teague, Tex.; and $82 million-asset Community Bank of Lemont in Lemont, Ill.
The nine failures brought the industry's total for the year to 115.
Despite more failure costs for the government, the FDIC was able to exercise authority to assess a portion of its resolution costs on institutions that were part of the company before they failed. The so-called "cross guaranty provision" makes open institutions liable if banks they are affiliated with fail.
The FDIC said Park National Bank and Citizens National Bank were assessed those costs while still open institutions; they were subsequently closed when not able to pay the full amounts.
The special authority has been used only six times since it was granted in 1989.
At the end of August, the Federal Reserve Bank of Chicago had given FBOP, which is solely owned by Michael E. Kelly, 30 days to boost capital ratios at its hardest-hit institutions.
But FBOP could not stop its losses. As of June 30, the holding company had reported a net loss for of $81 million for the first half of the year, compared with an $87 million profit in the first half of 2008. Cal National had hardly any capital at the end of the second quarter; its Tier 1 risk-based capital ratio was only 1%.
Cal National was the largest institution to fail since $7 billion-asset Corus Bank was closed in Chicago on Sept. 11, and the fourth largest bank to fail this year. The $19 billion in failed-bank assets for the nine institutions was the second most in a single night this year; on Aug. 14 the government seized $25 billion-asset Colonial Bank in Alabama.