Guaranty is bankrupt: BBVA gets its FDIC-seized assets
It’s official: Guaranty Bank is the second-largest bank seized by the FDIC in 2009. BBVA, through its American subsidiary Compass, is increasing its profile in the US. And now it can do so, not only through merger, but through FDIC asset seizure too. Here is the announcement that was leaked just yesterday:
Guaranty Bank, Austin, TX was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with BBVA Compass, Birmingham, Alabama, to assume all of the deposits of Guaranty Bank, excluding those from brokers.
Guaranty Bank had 103 branches in Texas and 59 branches in California. Former branches of Guaranty Bank will reopen during normal banking hours starting tomorrow as branches of BBVA Compass. Depositors of Guaranty Bank will automatically become depositors of BBVA Compass. Depositors 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 should continue to use their existing branches until BBVA Compass can fully integrate the deposit records of Guaranty Bank.
This evening and over the weekend, depositors of Guaranty Bank 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 June 30, 2009, Guaranty Bank had total assets of approximately $13 billion and total deposits of approximately $12 billion. In addition to assuming all of the deposits of the failed bank, BBVA Compass agreed to purchase $12 billion of the failed bank’s assets. The FDIC will retain the remaining assets for later disposition.
The FDIC and BBVA Compass entered into a loss-share transaction on approximately $11 billion of Guaranty Bank’s assets. BBVA Compass will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers.
BBVA Compass will purchase all deposits, except about $344 million in brokered deposits, held by Guaranty Bank. The FDIC will pay the brokers directly for the amount of their funds. Customers who placed money with brokers should contact them directly for more information about the status of their deposits.
Customers who have questions about today’s transaction can call the FDIC toll-free at 1-800-760-3641. The phone number will be operational this evening until 9:00 p.m., Central Daylight Time (CDT); on Saturday from 9:00 a.m. to 6:00 p.m., CDT; on Sunday from noon to 6:00 p.m., CDT; and thereafter from 8:00 a.m. to 8:00 p.m., CDT. Interested parties can also visit the FDIC’s Web site at https://www.fdic.gov/bank/individual/failed/guaranty-tx.html.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $3 billion. BBVA Compass’s acquisition of all the deposits was the "least costly" resolution for the FDIC’s DIF compared to alternatives. Guaranty Bank is the 81st FDIC-insured institution to fail in the nation this year, and the second in Texas. The last FDIC-insured institution closed in the state was Millennium State Bank of Texas, Dallas, July 2, 2009.
According to BBVA, the loss sharing agreement says that the FDIC would face 80% of the first 2300 million in losses from acquired credits, and 95% of the rest.
¿Is that normal? It looks like an awfully good deal to me (not being a US taxpayer, of course).
No word on the price paid, if any, as of yet. Somehow, one would think this little detail merits a mention in the press announcements.
It is a good deal, definitely.
The FDIC is undercapitalized. Back in July, after IndyMac, the first relatively large bank went to the wall, I wrote a post which pointed to this:
https://pro.creditwritedowns.com/2008/07/does-fdic-have-enough-money.html
The FDIC couldn’t even handle the bankruptcy of a large regional bank. So, now, with the avalanche of bankruptcies actually happening, they need to dispose of these assets as quickly and efficiently as their under-capitalized position allows them to do.
Sheila Bair has already asked for hundreds of billions of additional money. But, for the time being, one solution is gifting the seized banks to other institutions or financial buyers on favorable terms in order to prevent an immediate depletion of FDIC capital.
In the end, this is another secret transfer of capital from taxpayers to the banks, of course. And the eventual cost of the crisis will be that much higher as a result.