both TonyRo76 and LasVegasDave.
Posted on 12/05/2009 6:40:35 AM PST by Las Vegas Dave
CLEVELAND, Ohio -- AmTrust Bank, which opened with one office on Valentine's Day 120 years ago and grew to one of the nation's 100 largest banks, was seized by federal regulators Friday and bought by New York Community Bank of Westbury, N.Y.
AmTrust is the first Northeast Ohio bank to fail since TransOhio Federal Savings Bank of Cleveland was seized 17 years ago.
AmTrust, the latest calamity in the nation's 2-year-old banking crisis, became the 128th bank to fail this year, and the second in Ohio. Six banks in all failed Friday, bringing the year's total to 130. With assets of $12 billion, AmTrust was the fourth-largest to fail this year.
New York Community Bank, one of the nation's 25 largest banks and one of its strongest, paid nothing to take over AmTrust's $8 billion in deposits, which indicates AmTrust was essentially worth nothing, analysts said. About 77 percent of the privately owned bank was held by the Goldberg family, which had controlled it for nearly five decades.
While the closure is not surprising -- given the parent company's bankruptcy filing this week -- it is still stunning to the bank's 280,000 local customers, 1,400 local employees and a community that had watched the sleepy thrift become a national powerhouse and an important philanthropic force across Northeast Ohio.
For most customers, there's no issue in the short term. "Depositors are not losing a penny," said FDIC spokesman David Barr.
Customers can access the money in their accounts as usual through ATM/debit cards or by writing checks in the branches. Direct deposits and payments already scheduled will continue as if nothing had changed. Customers who have questions can call the FDIC toll-free at 1-800-450-5143 from 9 a.m. to 6 p.m. Saturday and from noon to 6 p.m. Sunday.
The main group who will be affected are those who had loan applications in process. They could get stalled or canceled.
New York Community Bank Chairman and Chief Executive Joseph Ficalora said in an interview that the bank plans to keep all 66 AmTrust branches open, keep the Cleveland headquarters and keep all the branch employees, at least for the foreseeable future.
"We have a great deal of confidence in the people who've been doing the job," Ficalora said. "We are definitely interested in working with them to make the bank the larger bank it once was."
Branch employees are critical, he said. "The thing we most appreciate is the relationship that's established" between customers and employees they know. As for management, "those decisions will be made person-by-person," he said.
New York Community Bank also plans to keep the AmTrust name. The bank will be known as AmTrust, a division of NYCB.
While depositors aren't losing anything, the FDIC fund is taking an estimated $2 billion hit, Barr said. The FDIC entered into an agreement to cap New York Community Bank's potential losses on the loans it's buying. NYCB agreed to buy about $9 billion in AmTrust assets. The FDIC will keep the remaining $3 billion in loans to sell later.
View full sizeReid Brown, The Plain DealerAmong the nation's 8,100 banks, AmTrust was the 92nd largest as of June 30. At its height, it was the 68th largest in 2006 and 2007. In the last two years it's lost nearly 40 percent of its assets and deposits as its loans lost value, CDs matured and customers left. AmTrust was simply into mortgage lending too deep, much of it risky or in markets that were about to implode.
"It's a terribly tragic situation but they weren't alone in the problem," said Karen Hopper Wruck, a finance and banking professor at The Ohio State University's Fisher College of Business.
AmTrust's moves into Florida and Arizona might have appeared wise years ago, since few suspected the housing market was about to collapse, Wruck said. She noted that it might be easy to blame management, but since they're the majority of shareholders, "they're taking the vast majority of the hit."
AmTrust's failure follows its financial report two weeks ago that showed the bank was spiraling toward insolvency. The bank's parent company, AmTrust Financial Corp., filed for bankruptcy on Monday. The bank was not included because banks can't file for bankruptcy protection.
Banking analyst Terry McEvoy of Oppenheimer & Co. in Maine said NYCB is a bit of a surprise because the bank had no presence in Ohio, Florida or Arizona, the three markets where AmTrust has branches. But he said NYCB is "highly regarded."
AmTrust has 25 branches in Cleveland and Akron, 25 in Florida and 16 in Arizona.
Michael Van Buskirk, president and CEO of the Ohio Bankers League, an industry trade group, said it's better for the region that AmTrust was bought by a bank with no local presence. The purchase by a bank with existing branches might have meant big losses in jobs and branches. "I think this is a positive for Cleveland."
AmTrust is the second of Northeast Ohio's five largest banks to fall under the weight of bad mortgage loans in the past year. Regulators last fall forced the sale of National City to Pittsburgh's PNC Financial Services Group to thwart a likely failure.
The move comes more than a year after AmTrust's federal regulator said the bank was guilty of "unsafe and unsound banking practices," including making risky loans with no documentation of income a year after most banks had stopped such loans.
The Office of Thrift Supervision essentially told AmTrust to shape up, or else. Instead, AmTrust's finances got worse every quarter and the bank had lost money for seven of the past nine quarters. The bank tried to cut costs and raise money by laying off nearly 40 percent of its workers -- more than 1,000 people -- in the past two years and by holding a fire sale on various branches.
AmTrust, a former savings and loan, was at its height in mid-2007, just before the mortgage industry collapsed and investors nationwide started losing faith in the way mortgages were approved. At the time, it employed nearly 3,000 -- 2,000 of them in Ohio.
Banks like AmTrust operate on an originate-and-sell mortgage model, meaning they issue loans to borrowers and sell the mortgages to investors. But when investors almost overnight stopped buying many mortgages in the summer of 2007, banks with risky loans were caught holding them in a nasty game of hot potato.
Until this summer, AmTrust was the fourth-largest bank in the region, behind PNC, KeyCorp and Third Federal, with nearly $5 billion in deposits in Greater Cleveland. In the most recent report issued by the FDIC, AmTrust fell to No. 7 locally, with its market share dropping from 7 percent to 4 percent.
Though it had branches in only three states, AmTrust became one of the nation's 15 largest mortgage lenders.
Great banking leadership, wonder what the annual salary of the wonderful CEO was?? Fact is a ninth grade school drop out could have done as good a job.
Also seized by the FDIC on Friday were three Georgia banks: Buckhead Community Bank, based in Atlanta, with $874 million in assets and $838 million in deposits; First Security National Bank, based in Norcross, Ga., with $128 million in assets and $123 million in deposits; and Tattnall Bank, of Reidsville, Ga., with assets of $49.6 million and deposits of $47.3 million.
Benchmark Bank, based in Aurora, Ill., with $170 million in assets and $181 million in deposits, also was closed, as was Greater Atlantic Bank, of Reston, Va., with $203 million in assets and $179 million in deposits.
The failure of Buckhead Community Bank is expected to cost the federal deposit insurance fund an estimated $241.4 million; that of First Security National Bank, around $30.1 million; Tattnall Bank, $13.9 million; Benchmark Bank, about $64 million; and Greater Atlantic Bank, $35 million.
The three shutdowns in Georgia brought to 24 the number of bank failures in that state so far this year. Benchmark Bank was the 20th to fail in Illinois. Failures also have been concentrated in California and Florida.
As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have accelerated and sapped billions out of the federal deposit insurance fund. It has fallen into the red.
The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years.
Depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. The FDIC still has about $21 billion cash in loss reserves apart from the insurance fund. It can also tap a Treasury Department credit line of up to $500 billion.
Banks have been especially hurt by failed real estate loans. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.
If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.
The 130 bank failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the federal deposit insurance fund more than $28 billion so far this year. They compare with 25 last year and three in 2007
I don’t know what to make of this news. Having been through the Depression (1929) my parents are a little panicky. They have taken a considerable amount out of their bank and have it in safe keeping. I , personally, am not sure what to do. What do you folks think?
Thanks for posting this, Las Vegas Dave.
I couldn’t remember that it was formerly Ohio Savings.
This country has the means to avoid another great depression. And that’s what the feds have been doing since this started in 2008. So, don’t worry too much. Just keep working and saving what you can.
Thanks, It’s hard to remain objective when those around you are panicking.
“About 77 percent of the privately owned bank was held by the Goldberg family, which had controlled it for nearly five decades.”
Actually, it is kind of surprising that a privately owned bank like this failed. Usually, when the management actually owns the business and is risking their own personal fortune, they are quite conservative.
The FDIC is broke, so I guess they have 9th grade education as well...
Does "philanthropy" here = "lending to any deadbeat with a pulse"?
Yeah, but it usually implies you’re using someone else’s money. That’s why I was surprised.
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