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…
{ 4 comments… read them below or add one }
I started the First People’s Bank of OB this morning over coffee; it’s failed already as the buzz has waned. Can I have a bailout now?
Susan Golding was an original investor in 1st Pacific. I wonder if she got her money out just in time? A foot note – 1st Pacific is (was) a business bank – no home mortgages. If the mortgage fiasco didn’t bring them down, what did?
Too much commercial real estate and a piss-poor board of directors. 1st Pacific purchased Landmark National Bank based in Solana Beach in 2007 when they were on the verge of collapse, and made the fatal mistake of allowing some of those board members to retain seats with the new 1st Pacific. The board members “allegedly” ousted a popular and fairly decent CEO, Vince Siciliano. Then the former CEO of the troubled and now defunct Landmark National Bank stepped in to take over as inteim CEO. So I guess the logic of the board was….”You ran a bank into the ground, we purchased it, found out you were full of bad CRE loans, and now we would like you to be CEO again?” Makes no sense. Anyway, It’s no surprise they failed. They should have failed months ago, but I’m sure City National was just waiting for the lowest price possible.
What really stinks is that I hear the FDIC is capping all the former 1st pacific employees vacation time at 80 hours, and not paying out any accrued sick pay or severances. So…..If you worked your ass off for 10 years at the company and hardly were sick or took vacations, you’re screwed. Some folks that had upwards of 200 hours of sick/vacation time accrued. City national is able to wash their hands of it because the FDIC is making the decision not to pay the employees. The Board of directors and upper management should have to pay those employees out of their own fat cat pockets.
Spot-on about the commercial deals – lots of the small-time local banks are getting chewed up with commercial real estate and land development deals that went south when the demand for residential construction went south.
I feel for the employees who’re losing lots of paid time off, but even if FDIC would’ve allowed the accruals there’s no guarantee they’d have been paid. I’ve still got a $4300 claim for back pay and benefits that’s been open since my former employer was selected for execution back in 2008…