Miami Bank Is Said to Borrow from Atlanta Fed
ATLANTA - Southeast Banking Corp. is borrowing funds from the Federal Reserve Bank of Atlanta, a sign the troubled Miami-based company may be having liquidity problems, banking sources said Friday.
Loans from the Atlanta Fed's discount window jumped to $137 million last Wednesday, up from $48 million a week earlier, according to data released late Thursday afternoon.
The figures do not break down loans made to individual banks in the Atlanta Fed's district, but sources said the surge in borrowing was to Southeast Banking.
Banker Told of Borrowing
The president of a community bank in South Florida said a Southeast officer told him Friday that the bank was using the discount window and "was being accommodated nicely." The community banker, who uses Southeast as a correspondent bank, did not want to be identified.
Spokesmen for Southeast, which has $11.2 billion in assets, and the Atlanta Fed declined to comment.
Banks that have short-term funding problems can borrow from the Federal Reserve if they put up assets as collateral. Institutions usually shy away from doing so because the marketplace perceives the borrowing as a sign that a bank is unable to maintain liquidity from traditional sources, such as customer deposits and funds purchased from correspondent banks.
Southeast has been hard hit by the real estate downturn in Florida. Its $768 million in nonperforming assets are equal to 9.22% of total loans, a ration considered dangerously high. Common shareholder equity on June 30 was a slim 2.2% of assets.
The company is actively seeking a merger or capital infusion and has said a takeover might require federal assistance.
Southeast's deposits have declined steadily this year, to $8.9 billion at midyear from $11.25 billion on Dec. 31. Assets fell at a slower rate, to $11.2 billion from $13.4 billion.
Thomson Bankwatch, the rating agency, has given Southeast its lowest credit rating since May 31. The rating indicates Southeast would be hard pressed to buy federal funds from brokers. A fed funds trader at one money-center bank said his credit line to Southeast was shut down months ago.
Other sources of funds are deposits by correspondent banks and the sale of investment securities. Several Florida banks said on Friday that they had dropped their correspondent relationships with Southeast.
Analysts Don't See Crisis
Some analysts say any Southeast liquidity problem is not yet a crisis. "They're prepared for normal erosion," J. Frederick Meinke of Raymond James Associates Inc. in St. Petersburg said before word of the Fed borrowing. "I don't really see the liquidity concerns sinking the bank unless there's some piece of really horrendous news."
The spike in discount window borrowing at the Atlanta Fed was unusual, sources said. Between May 1 and July 11, daily borrowings were between $4 million and $11 million. The last time loans were as high as $137 million was Feb. 21, when $164 million was borrowed. Atlanta Fed officials at the time attributed that to seasonal borrowing.
Between June 6 and Aug. 22 last year, discount window loans in Atlanta ranged from $9 million to $45 million.
The spike came the week after Southeast reported a $146 million loss for the second quarter, its seventh consecutive quarterly deficit.
First Union Corp., based in Charlotte, N.C., is viewed as the leading candidate to acquire Southeast in a federally assisted deal. But sources close to the negotiations say the Federal Deposit Insurance Corp. is troubled by First Union's own high level of nonperforming assets, $1.2 billion, or 4.4% of total loans. The regulators are also having trouble working out a policy for government assistance to a bank that is not yet insolvent.
Alfonso Fanjul, a wealthy sugar magnate who is chairman of Southeast's executive committee, is also rumored to be trying to put together a group of investors to infuse capital into the bank. Mr. Fanjul is the bank's largest individual investor, with 1.6 million shares, or 4.8% of the total.
The Fed recently has come under fire for allegedly using the discount window to prop up troubled banks. House Banking Committee Chairman Henry Gonzalez, D-Tex., has charged that the loans have allowed "insolvent institutions to stay open long beyond the point of viability."