Saturday, June 20, 2009

Failure Friday Returns




40 banks have closed so far this year, three of which were closed yesterday. All three banks were on the bad banks list.

I am puzzled by the seemingly haphazard process that the FDIC is following when deciding to shutter a bank. Size is obviously a concern (the larger the bank, the longer it tends to linger), but beyond that, there seems to be no discernible pattern.

This Corus Bank saga is crazy. The bank is beyond repair and management has been selling shares by the millions in the last few weeks. The longer this bank is allowed to exist, the greater the risk to the FDIC. Since the FDIC is running out of money, that means more risk for you & me.

2 comments:

Steven said...

The FDIC is actually better off if the OTS provides Corus more time. At least 6 of the condo projects Corus funded have had auctions that sold between 35 and 45 units. More are being scheduled. That auction money comes right into Corus to reduce the balance due on those loans. The longer Corus has to reduce exposure to these and put the projects on their books in order, the better off the FDIC will be. Foreign buyers are starting to purchase condo units in bulk. Corus is renting 1/2 of the units in the Panama City Beach project they seized in 9/2008.

While there is no doubt that Corus is is deep, if Corus can sell off a few properties in the next two months, they may buy enough time to survive. No matter what, the FDIC will not want to have to deal with the bulk properties on Corus' books.

MK said...

Steven,

Thanks for the comment. You are much more optimistic than I am! The FDIC cares about relative exposure: liquidation value of assets compared to the deposits it covers. As deposits become a larger portion of Corus' funding, liquidation value becomes more of a concern. Why would you have faith in the operation of this company to handle this issue?

- $3 in non-accrual assets per $1 of Tier 1 capital and LLA

- 75% of CRE loans are condo construction loans

- 17 of their 20 Florida condo construction loans are in non-accrual status. Out of $955 million in south Florida loans, only $49 million are performing.

-15 month supply of condo & coop apartments according to NAR

- The sale on 6/12/09 was for 15 condos, which still left 194 of the 235 condos available

- In addition, there is a class action lawsuit filed against Corus executives regarding their purchase of units in that same complex.

I hope that your optimism is rewarded, we all want this thing to bottom. But I fear that the OCC (Corus is a commercial bank) has already waited too long.