Bank failure Friday, also 80 is the new 95
A bit of news to go with this week’s failures. FDIC said it will cut the amount of losses it absorbs on failed bank assets sold to acquirers. Here’s the Reuters story by Karey Wutkowski. More from Paul Miller at FBR Research:
We expected 95/5 loss sharing to be eliminated at some point as acquirers gained better clarity into the actual losses on these portfolios, and acquirers’ bids on failed banks have become more competitive in recent months as that clarity into losses materialized. When elimination of 95/5 becomes effective, the FDIC loss-sharing agreement will be 80/20 for the entire loan portfolio.
The change to the loss-sharing agreement will have the biggest impact on the FDIC, in our view, as it will simplify failed bank transactions for them. Regulators will no longer have to use resources to determine where the appropriate 80/20 to 95/5 loss sharing thresholds should lie, and on the margin the cost to the deposit insurance fund (DIF) should decrease as the FDIC will absorb a lesser percentage of losses on really bad portfolios.
For details on loss sharing, see here. But in a nutshell, FDIC will now guarantee up to 80% of the losses on assets subject to loss-share agreements, down from 95%. This will cut the amount that potential acquirers are willing to bid for failed banks, reducing the Deposit Insurance Fund’s take on the front-end, but I’m sure FDIC has done the math and higher loss guarantees are costing the DIF more over time.
On to tonight’s failures….two more in Georgia. which accounts for about one-sixth of all bank failures since 2008 according to Wutkowski. Blame speculative lending, in particular on CRE.
–Failed bank: Desert Hills Bank, Phoenix AZ
–Regulator: Arizona Department of Financial Institutions
–Acquiring bank: New York Community Bank, Westbury NY
–Vitals: at 12/31, assets of $496.6 million, deposits of $426.5 million
–Transaction: loss-share on $325.9 million assets
–Estimated DIF damage: $106.7 million
–Failed bank: Unity National Bank, Cartersville GA
–Acquiring bank: Bank of the Ozarks, Little Rock AR
–Vitals: at 12/31, assets of $292.2 million, deposits of $264.3 million
–Transaction: loss-share on $206.1 million assets
–Estimated DIF damage: $67.2 million
–Failed bank: Key West Bank, Key West FL
–Acquiring bank: CharterBank, West Point GA
–Vitals: at 12/31, assets of $362.9 million, deposits of $343.3 million
–Transaction: loss-share on $263.1 million assets
–Estimated DIF damage: $123.3 million
–Failed bank: McIntosh Commercial Bank, Carrollton GA
–Regulator: Georgia Department of Banking and Finance
–Acquiring bank: Centennial Bank, Conway AR
–Vitals: at 12/31, assets of $88.0 million, deposits of $67.7 million
–Transaction: loss-share on $75.8 million assets
–Estimated DIF damage: $23.1 million