On May 7, the FDIC placed 1st Pacific Bank, headquartered in San Diego, into receivership, effectively ending the bank’s operations. They then immediately turned over the bank’s assets, including $291 million in deposits at seven area branches, to City National Bank. City National previously operated 73 branches, mostly in New York City, the San Francisco Bay area, and Los Angeles.
In addition to the $291 in deposits, City National acquired another $336 million in assets from the FDIC as part of the 1st Pacific deal, including real estate, office equipment, and, mostly, the $276 million portfolio of loans that 1st Pacific had outstanding at the time of their closure.
The FDIC also signed a ‘loss-sharing agreement’ with City National. These agreements usually limit a big bank’s losses when a smaller bank is taken over—if the new bank can collect on the loans made by the old bank, they profit. If they fail, the FDIC pays them back somewhere between 80-95% of the money they lose. FDIC estimates they’ll lose about $88 million on this particular deal.
Where does the FDIC get the money to pay off these banks? From an insurance fund that all banks pay into (hence the ‘your deposits are insured by the FDIC’ plaques at every bank). Lately the FDIC has been increasing its insurance premiums it charges healthy banks because it’s losing so much money with these loss-share agreements. Who pays for that? You, of course—have you noticed what kind of interest you’re getting paid on your savings account lately?
Last question—how much did City National pay for the $291 million in cash, $336 million in assets, and the $88+ million guarantee against losses? A 1.62% premium on the deposits alone, or about $296 million for a $627 million dollar package, all funded by our bailout dollars and the money we’ve lost due to the interest rates on our savings accounts being pushed down to about zero.
I’m currently researching how to get the FDIC to pay me to take over a failed bank, as this looks to be one of the sweetest deals in the history of business…