United Western, Colorado's Biggest Thrift, in Limbo

United Western Bank is in a state of limbo, unable to satisfy, change or escape a key demand from its regulator.

Colorado's largest thrift has missed a deadline to boost its capital, and regulators refuse to give it an extension or waiver.

But executives told shareholders Friday that they were making progress on other fronts.

"We are working daily with Goldman Sachs to consider all options," said Michael McCloskey, chief operating officer at United Western Bancorp Inc., the thrift's parent company.

Also, Goldman Sachs Group Inc. is helping United Western explore a merger, acquisition or sale of the thrift.

So far there is nothing significant to report, McCloskey said, but he added that executives remain optimistic about the $2.6 billion-asset company's prospects.

In June the Office of Thrift Supervision placed United Western under a cease-and-desist order, a stricter version of a memorandum of understanding issued in December. The order required the thrift to boost capital levels by June 30, stop offering above-market-rate products aimed at attracting short-term money from outside the state and reduce its concentration of construction and commercial real estate loans.

Regulators want the thrift to raise its risk-based capital ratio to 12%; it was 9.2% as of March 31.

Veteran banker Jim Peoples, who replaced Scot Wetzel as chief executive in April, said United Western has reduced its real estate loan exposure but was moving more slowly regarding its mortgage-backed securities.

At the end of 2006, about the time the housing market peaked, the thrift held $749 million in mortgage-backed securities that lacked a government guarantee.

Those "private-label" holdings were valued at $277.7 million in the first quarter.

As a thrift, United Western must hold 65% of its assets in mortgages and other consumer loans. But the heavy concentration also reflects the company's previous incarnation, as Matrix Capital.

Matrix's model was to take institutional deposits from retail branches, and lend them out on a wholesale basis in the mortgage markets. In 2006, Matrix changed its name to United Western and adopted a community-banking strategy. That shift might have seemed prescient, but it meant the thrift was making construction and commercial real estate loans as a recession loomed.

United Western believed in its mortgage-backed securities much longer than it should have, its chairman, Guy Gibson, conceded in his most recent letter to shareholders.

For example, last summer, when the company sold securities backed by option adjustable-rate mortgages with unpaid principal of $47.3 million, it received just $378,000. To help offset that loss, it raised $80 million in a stock offering, diluting its existing shares. It also has sued Countrywide, which it claims sold it junky mortgages wrapped in a high credit rating.

United Western's share price, more than $10 last summer, has recently traded below $1, raising concerns that it could be delisted from Nasdaq.

On Friday shareholders approved an increase in the number of authorized shares from 50 million to 550 million. The company also said it might pursue a reverse stock split, where the number of individual shares is reduced to create a higher per-share value, to prevent a delisting.

Larry Martin, a consultant in Denver, said United Western likely will have to sell assets to raise money. "It would downsize the company, and it would generate cash to recapitalize."

For reprint and licensing requests for this article, click here.
Community banking Colorado Colorado
MORE FROM AMERICAN BANKER