It is now a ritual. Every Friday night the FDIC announces which banks have been playing fas and loose with our money and need to be shut down. This week, there are two banks, Security Pacific of Los Angeles and Franklin of Houston. Franklin is the bank run by Lewis Ranieri, of Liar’s Poker fame and one of the early innovators of mortgage-backed finance.
The FDIC has found a suitor for Security Pacific’ bank’s deposits with Pacific Western. (This is not the famous SecPac that merged into Wells Fargo in 1992 but an also-ran that was formed in 2005) Nevertheless, one should notice a large tab being picked up by the FDIC.
Security Pacific Bank, Los Angeles, California, was closed today by the Commissioner of the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Pacific Western Bank, Las Angeles, California, to assume all of the deposits of Security Pacific.
The four branches of Security Pacific will reopen on Monday as branches of Pacific Western. Depositors of the failed bank will automatically become depositors of Pacific Western. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until Pacific Western can fully integrate the deposit records of Security Pacific.
Over the weekend, depositors of Security Pacific can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.
As of October 17, 2008, Security Pacific had total assets of $561.1 million and total deposits of $450.1 million. Pacific Western agreed to assume all the deposits for a two percent premium. In addition to assuming all of the failed bank’s deposits, Pacific Western will purchase approximately $51.8 million of assets. The FDIC will retain the remaining assets for later disposition.
One should notice the same at Franklin as well. Prosperity has stepped in for the deposits, but there are considerable losses facing the FDIC. And this is a much bigger bank – one that I will have to add to my global list of bankruptcies later when I have the opportunity.
Franklin Bank, S.S.B., Houston, Texas, was closed today by the Texas Department of Savings and Mortgage Lending, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Prosperity Bank, El Campo, Texas, to assume all of the deposits, including those that exceeded the insurance limit, of Franklin Bank.
Franklin Bank’s 46 offices will reopen as branches of Prosperity Bank under their normal hours, including those with Saturday hours. Depositors of the failed bank automatically become depositors of Prosperity Bank. Customers of both banks should continue to use their existing branches until Prosperity Bank can fully integrate the deposit records of Franklin Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.
As of September 30, 2008, Franklin Bank had total assets of $5.1 billion and total deposits of $3.7 billion. Prosperity Bank agreed to assume all the deposits, including the brokered deposits, for a premium of 1.7 percent. In addition to assuming all of the failed bank’s deposits, Prosperity Bank will purchase approximately $850 million of assets. The FDIC will retain the remaining assets for later disposition.
As this process keeps happening, one must ask how long the FDIC can keep doing this before it runs out of money.
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Sources Pacific Western Bank Acquires All the Deposits of Security Pacific Bank, Los Angeles, California – Press Release, FDIC Prosperity Bank Acquires All the Deposits of Franklin Bank, S.S.B., Houston, Texas – Press Release, FDIC
Originally published at Credit Writedowns and reproduced here with the author’s permission.