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Regulators Seize Another Recipient of TARP €Healthy Bank€ Bailout

Paul Kiel | , ProPublica | 11/15/2009, 11:55 p.m.

Regulators seized three banks on Friday, Nov. 13, bringing the toll of failed banks for the year to 123. As always, we€ve updated our list of failed banks [1].

One of the banks closed yesterday was a TARP recipient: Pacific Coast National Bank of San Clemente, Calif., received $4.1 million [2] in taxpayer funds in January. That investment, made through the Treasury Department€s program to invest in €healthy banks,€ [3] will be wiped out.
It€s the third TARP recipient to topple this month. Last week also was tough for two companies the government recently deemed €healthy€ and thus worthy of TARP money. CIT declared bankruptcy, wiping out the government€s $2.33 billion investment [4], and regulators closed United Commercial Bank [5], wiping out another $299 million.

Last month [6], we reported that all three institutions were foundering, raising questions about how they€d been approved for government money meant for only €healthy banks.€

Only a few months after Pacific Coast received the TARP investment in January, the bank announced [7] that its loan portfolio, especially construction and commercial real estate loans, had deteriorated significantly.

The bank warned [8] that its portfolio would sink even more if Southern California€s real estate market continued to plummet. Soon, regulators criticized the bank for €unsafe and unsound practices€ and ordered [9] it to raise capital. But it was too late. Regulators seized the bank, according to last night€s announcement [10], because there was €no reasonable prospect that the bank will become adequately capitalized without additional Federal assistance.€

The FDIC struck a deal [11] with Sunwest Bank of Tustin, Calif., to assume Pacific Coast€s deposits and assets. Pacific Coast had only two branches. The failure will cost the FDIC $27.4 million.

The other two banks seized Friday were in Florida. The failure of Orion Bank [12] of Naples, a community bank with 23 branches, will cost the FDIC $615 million. Century Bank [13] of Sarasota will cost the FDIC $344 million. IberiaBank of Louisiana assumed all the deposits and part of the assets of each.