Pat Dollard | Young Americans

Regulators close failed banks in Ga., Calif.

Regulators close 2 failed banks in Calif., 1 in Georgia; 9 US bank failures this year

WASHINGTON — Regulators on Friday closed FirstBank Financial Services in Georgia and two California banks, Alliance Bank and County Bank, marking nine failures this year of federally insured institutions.

The Federal Deposit Insurance Corp. was appointed receiver of the three banks. FirstBank Financial, based in McDonough, Ga., had $337 million in assets and $279 million in deposits as of Dec. 31. Alliance Bank, based in Culver City, Calif., had about $1.14 billion in assets and $951 million in deposits as of year’s end. Merced, Calif.-based County Bank had around $1.7 billion in assets and $1.3 billion in deposits as of Feb. 2.

Twenty-five U.S. banks failed last year, far more than in the previous five years combined. The six failures announced in the last two weeks are double the total for all of 2007.

It’s expected that many more banks won’t survive this year amid the pressures of tumbling home prices, rising mortgage foreclosures and tighter credit. Some may have to merge with other institutions.

The FDIC said FirstBank Financial’s deposits will be assumed by Regions Bank in Birmingham, Ala. Its four branches will reopen Monday as offices of Regions Bank. Regions Bank also agreed to buy around $17 million of FirstBank’s assets; the FDIC will retain the rest for eventual sale.

The parent company, Regions Financial Corp., is a large regional bank company that received $3.5 billion from the Treasury Department under the government’s financial rescue program. In August, Regions Bank took over deposits and some assets of another failed institution, Integrity Bank of Alpharetta, Ga.

Alliance Bank’s deposits will be assumed by San Diego-based California Bank & Trust, which also agreed to buy about $1.12 billion in assets. The FDIC will keep the rest for eventual sale. In addition, California Bank & Trust agreed to share losses on the assets with the FDIC. Alliance Bank’s five branches will reopen Monday as offices of California Bank & Trust.

Westamerica Bank, based in San Rafael, Calif., agreed to purchase all the deposits and assets of County Bank. Westamerica also is sharing losses with the FDIC. County Bank’s 39 branches will reopen as branches of Westamerica, some on Saturday and others on Monday.

A number of banks have failed and been shuttered in recent months in California, an area that’s been especially battered by the mortgage and housing crises.

The FDIC estimated that the resolution of FirstBank Financial will cost the federal deposit insurance fund $111 million while that of Alliance Bank will cost $206 million and County Bank, $135 million.

Regular deposit accounts are insured up to $250,000.

Since October, the Treasury Department has been using most of the first half of the $700 billion federal bailout fund to buy stock in banks and other financial institutions, with the idea that cash injections will spur banks to get lending again.

But with banks clamoring for the second $350 billion installment to be doled out, Treasury Secretary Timothy Geithner and other top officials are readying a plan to overhaul the rescue program. Those efforts are expected to be announced Monday.

Seattle-based thrift Washington Mutual Inc. failed in late September, the biggest bank collapse in U.S. history. It had $307 billion in assets. Wall Street powerhouse JPMorgan Chase & Co. bought Washington Mutual’s deposits, branches and loan portfolio from the FDIC for $1.9 billion.

The FDIC estimates that through 2013, there will be more than $40 billion in losses to the deposit insurance fund, including an $8.9 billion loss from the failure of IndyMac Bank last July. The agency has raised insurance premiums paid by banks and thrifts to replenish its fund, which now stands at around $34.6 billion, below the minimum target level set by Congress and the lowest level since 2003.

An FDIC official asked Congress this week to more than triple the agency’s line of credit with the Treasury Department to $100 billion from the current $30 billion, as a way to reassure the public that the government stands firmly behind insured bank deposits.

The FDIC has in place a program to guarantee as much as $1.4 trillion in U.S. banks’ debt for more than three years as part of the government’s financial rescue plan. Under the program, which is meant to thaw the freeze in bank-to-bank lending, the FDIC is providing temporary insurance for loans between banks, guaranteeing the new debt in the event of payment default by the borrowing bank.

Of the roughly 8,500 federally insured banks and thrifts, the FDIC had 171 on its confidential list of troubled institutions as of Sept. 30 — a nearly 50 percent jump from the second quarter and the highest tally since late 1995.
(AP)

BofA CEO Lewis says nationalization is ‘absurd’

CHARLOTTE, N.C. - Bank of America Corp. (BAC) (BAC) Chief Executive Ken Lewis capped off a week of defending his bank and his role in it on Friday by firing back against rumors that his company could be in danger of nationalization.

“It’s absurd,” Lewis said in an interview on CNBC, adding that he knows of no government officials who have talked about nationalizing the bank.

Treasury Secretary Timothy Geithner and other top officials are close to finishing a plan to overhaul the government’s $700 billion financial rescue fund. Some investors in recent days have been worried that the government’s latest revisions to its lifeline for banks would involve nationalizing many banks.

Speaking generally about the banking industry, Lewis reiterated the strength of his Charlotte, N.C.-based company, saying that BofA would not need additional federal funding and still believes its acquisition of brokerage Merrill Lynch & Co. (MER) was the right move.

“It’s been painful … I am still as convinced as ever that strategically this make sense,” Lewis said in the CNBC interview.

The interview was Lewis’ latest effort to convince employees and investors that he and his management team can lead the bank out of its current crisis.

Earlier in the week Lewis spent almost a million dollars buying shares of his struggling bank and posted a memo to employees that said the bank’s board “unanimously endorsed our business model, strategic direction and the team,” at its regular meeting on Jan. 28.

Bank of America shares rose $1.29, or 26.7 percent, to close at $6.13 Friday, after falling to a 25-year low - or $3.77 - in trading Thursday afternoon.

“Investors believe that this bank is about to fail and be nationalized by the United States government,” wrote Ladenburg Thalmann analyst Richard Bove in a research note late Thursday.

He added those fears “make no sense whatsoever,” and he rates Bank of America’s shares a “strong buy.”

Lewis purchased 200,000 Bank of America shares for $958,340 on Wednesday, according to a filing with the Securities and Exchange Commission on Thursday. It’s the second time in recent weeks that Lewis has pumped his own money into the bank. Two weeks ago, he bought 200,000 shares for $1.2 million.

The bank’s shares have been pummeled in recent days following the disclosure of the bank’s first quarterly loss in 17 years and mounting concerns about its recent Merrill Lynch acquisition.

Last week, Lewis went before his directors in Charlotte for “the longest board meeting in anyone’s memory,” he told employees in the memo issued Monday.

Some analysts said Lewis’ job might be on the line, but lead director O. Temple Sloan Jr. later issued a statement of support for the bank’s management team.

In the memo, Lewis called the company’s performance in January “encouraging.”

He also acknowledged employees are disappointed about cuts to their bonuses. He noted that higher-ranking executives are taking deeper reductions and that neither he nor his top lieutenants are receiving payouts for 2008, according to the memo.

Last month, it was learned that Merrill Lynch, with Bank of America’s knowledge, had moved up year-end bonuses for executives so they could be awarded before the acquisition was formalized Jan. 1. The bonuses were given as Bank of America was approaching the government for more money.

Former Merrill Lynch CEO John Thain, who had taken over as head of the combined company’s wealth management business, resigned after news of the bonuses broke.

Thain and Bank of America’s chief administrative officer, J. Steele Alphin, have been subpoenaed by New York Attorney General Andrew Cuomo amid an investigation into the timing of the Merrill Lynch bonuses.

On Monday, North Carolina Attorney General Roy Cooper also made a request for documents from Bank of America about the bonuses. The North Carolina Department of Justice issued an “investigative demand” seeking records, including a list of Merrill employees who received bonuses.

Bank of America is required to respond by March 4, according to the 11-page demand.

“Public money is at stake,” Cooper said in a statement.

Bank of America has already received $45 billion in government aid, including a $20 billion injection last month to help it absorb losses from its Merrill Lynch acquisition.

Lewis told CNBC he hopes the bank can pay back the $45 billion within three years.

Lewis also said he does not “feel good” about the $500,000 salary cap imposed by Obama for firms receiving relief funds, expressing concern that employees could be lured to foreign banks.

“It’s not me,” said Lewis, who made more than $20.4 million in 2007, according to an analysis by The Associated Press. “I’ll take $500,000.”
(AP)