Regulators Takes Over Two Banks

Boy, what is the FDIC going to do come the fall? A summer Friday night is the perfect time to take over a bank, but the same action even on a Friday night in September will be noticed by a larger number of people.

From a practical standpoint, this is really one bank failure, since the two banks were under the same holding company, First National Bank Holding Company, in Scottsdale, Arizona. But this is considered to be a reasonably sizable failure.

From the Wall Street Journal:

Federal regulators shut down two national banks late Friday in the latest chapter of the credit crisis, and the Federal Deposit Insurance Corp. successfully protected all depositors by selling the accounts to Mutual of Omaha Bank.

The Office of the Comptroller of the Currency, a division of the Treasury Department, revoked the charters of First National Bank of Nevada, based in Reno, Nev., and First Heritage Bank of Newport Beach, Calif. The FDIC was appointed receiver of both banks…..

First National Bank of Nevada had $3.4 billion in assets and $3.0 billion of deposits, making it a relatively large failure by historical standards — but much smaller than the $32 billion of assets that IndyMac Bank of Pasadena, Calif., had when it failed earlier this month…..

During the housing boom, First National Bank of Arizona made mortgage loans throughout much of the U.S. Even as the housing market was weakening, the bank revved up its riskier mortgage lending, an analysis of lending data by The Wall Street Journal showed last year.

A bank executive said at the time that much of the jump reflected borrowers who got second mortgages. The bank subsequently scaled back that business….

The second failed bank, First Heritage, was much smaller, with three branches, $254 million, of assets and $233 million of deposits. The OCC said it closed First Heritage Bank because it was undercapitalized…….

The FDIC said Friday night’s failures would likely cost the FDIC’s deposit insurance fund roughly $862 million.

Mutual of Omaha Bank has more than $750 million in assets and operates 14 retail branches in Nebraska and Colorado, as well as commercial lending offices in Dallas and Des Moines, Iowa. The bank, a unit of insurer Mutual of Omaha, has said it plans to build a network of community banks in fast-growing U.S. markets where its parent has an existing base of insurance customers.

“We would first like to reassure all customers of First National Bank of Nevada and First Heritage Bank that all their deposits are safe and accessible,” Jeffrey R. Schmid, Mutual of Omaha Bank’s chairman and chief executive, said in a statement. “Their deposits will automatically transition to Mutual of Omaha Bank and we will be open for business on Monday morning.”

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  1. Steve

    According to the FDIC press release, the assuming bank is only taking $200M of $3.4B in assets (probably cash and UST). Also, “the cost of the transactions to the Deposit Insurance Fund is estimated at $862 million.” That’s 27% of the banks’ assets.

  2. Stuart

    WaMu will break the FDIC. $150B in deposits. PLUS CDS nuke goes off. No longer a question of if. 50/50 they make it out of this month. One has to think though heaven and earth will be moved to prevent this.

  3. Stuart

    The Banks can’t handle the truth. These efforts to kick the can down the road are getting so obvious, so blatant and so outrageous, US credibility is leaping out the window with this corruption…

    Jul 25, 2008

    FASB To Reconsider Timing On Proposed Changes To Securitization Rules

    FASB announced in its weekly Action Alert yesterday (July 24) that at next week’s FASB board meeting, it will “reconsider the effective date and transition provisions” for its upcoming proposals to amend the securitization standards (FIN 46R and FAS 140). Additionally, FASB will “consider transitional disclosures and the timing of both projects.”

    Earlier today (July 25), Congressman Spencer Bachus, Ranking Member on the House Financial Services Committee, posted a press release noting he sent a letter to the chairmen of the SEC and FASB earlier this week, asking them to “extend the deadline for changes” to FASB’s upcoming revisions to FIN 46R and FAS 140 on securitizations “to allow for a full opportunity for all stakeholders to evaluate and comment on all policy alternatives and their consequences.”

    Bachus’ July 22 letter to SEC and FASB notes, “While expeditious regulatory action has been beneficial in many areas, I am concerned that your current timeline to amend FASB Statement 140… and [FIN]46R… by the end of 2008 may have serious unintended consequences. Changes to securitization accounting could have a dramatic impact on the economy, the capital markets, and consumers seeking credit.” Bachus then asks that the effective date for the revisions to FASB’s securitization rules be no sooner than Jan. 1, 2010. “In the interim,” says Bachus, “the SEC and FASB should work with market participants to develop temporary solutions to improve market transparency and disclosures.” [In related news, see also our separate blog post today: “Cox, Geithner Tell Congress…” about yesterday’s House Financial Services hearing on Systemic Risk and the Financial Markets; accounting was one of the topics mentioned at the hearing.]

    A joint letter was also recently sent to FASB by the American Securitization Forum (ASF) and the Securities Industry and Financial Markets Association (SIFMA) (see ASF-SIFMA July 16 letter) asking FASB to further delay the effective date of its proposed changes to the securitization rules beyond year–end 2008.

    NOTE: FASB had already tentatively decided to give even more time for some of the proposed changes to the securization rules, such as those impacting existing QSPEs; ASF-SIFMA and Bachus are recommending more time for the proposed changes in their entirely.….

  4. Tom Lindmark


    Congratulations for picking up on Bachus’s statement. Most people missed it. The unfortunate truth is that he and his cohorts will succeed in cooking the books. WAMU won’t fail because of accounting but it might go down due to a liquidity crisis.

    Here is what I wrote today on the Bachus statement

  5. Anonymous

    Many have made lots of comparisons between our current brewing storm of bank failures, the S&L crisis and the Great Depression. Some commentators appear to take comfort from predictions that not as many banks will fail this time around.

    I don't know why anyone would take comfort in a reduction in failures while ignoring the relative size of those failures. Due to repeals of certain state banking laws, federal charter shopping and the massive merger mania and consolidation of the last several decades, the amount of concentration is far greater now than in the 80s or 20s.

    Therefore, while the total number of failing institutions will be far fewer than during earlier crisises, the total market share of affected banks will likely be much greater than in previous banking collapses. I don't know if anyone has seen a detailed analysis approving of my instincts here, but I would be shocked if it turns out differently.

  6. Richard Kline

    To Anon of 1:58, that is a cogent, indeed obvious, but hitherto neglected point which hadn’t managed to penetrate my cortex either, my baleful eye on the rotting behemonths nothwithstanding. “Values not frequency.” Thanx.

  7. Steve

    To Anon of 2:06AM:

    FDIC can do several kinds of transactions, and is obligated to do the least costly one. In this case, the acquiring bank was willing to pay a premium for all deposits, insured and uninsured. That type of transaction is not uncommon historically. In the case of Indymac, there was no purchaser, and Indymac didn’t meet the `too big to fail’ statutory test, so FDIC couldn’t do a bridge bank and could only cover the insured deposits. That said, FDIC’s decision to pay an advanced dividend of 50% on the uninsured deposits of Indymac was political. Under the law, no one gets a penny of unsecured claims until FDIC is made whole, and since FDIC expects to lose $4-$8B on Indymac, the dividend was a politically motivated gift (that will be excused on GAO review as `confidence in the banking system’ act, no doubt).

  8. Anonymous

    Hi Steve… Thanks for your comment… but it still doesn’t make sense to me. How can bailing out uninsured deposits be the least costly option? To me, it seems obvious that not bailing out uninsured deposits entails less cost.

  9. Anonymous

    Clearly the thrust of banking policy is to exploit industry concentration by delaying and concealing bank failures to create the appearance of a steady drip drip drip. That means probably 30 months of onesies and twosies followed by protracted credit constriction with painfully high oligopolistic rates forevermore. No cathartic flight to safety but no bottom either. Lots of alpha though.

  10. Doc Holiday

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  11. Steve

    To Anon of 5:13AM:

    The FDIC’s cost test is subject to GAO review. But FDIC has plenty of leeway in making its decision. Generally, when the uninsured deposits are purchased, the purchaser takes all of the failed bank’s performing assets. Here they took almost nothing and that’s very unusual. But the purchaser may have business reasons to want the uninsured deposits, and at least in this case the acquirer paid a premium of about 4.5% which is hardly a fire sale. The asset side of the transaction is an extremely negative indicator of market conditions. In future failures I expect FDIC to wind up with nearly the entire book, and this is different from and far worse than what happened in the late 80’s.

    You can get an overview of the bidding process and transaction types for failed national banks from this OCC document:

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