Mr Kanas’s team agreed to pump $US900 million in new capital into the bank and to acquire $US12.7 billion of the bank’s assets and $US8.3 billion of certain deposits that are considered less risky.
BankUnited’s collapse is a reminder of the troubled state of the FDIC’s deposit-insurance fund, the program that guarantees most deposits against the risk of a bank failing. BankUnited is the 34th bank to fail this year after 25 last year.
The FDIC’s deposit insurance fund had just $US19 billion at the end of 2008 to backstop trillions of dollars in deposits. To replenish the fund, the agency is scheduled to vote on a controversial plan to assess higher fees against more than 8000 banks.
In addition, President Obama signed a bill into law on Wednesday that allows the FDIC to borrow as much as $US100 billion from the Treasury Department to shore up its fund, a measure the FDIC had sought for months.
BankUnited’s failure comes just as bankers, federal officials and many investors had been hoping the worst was over for the banking industry. The 19 biggest banks this month performed better than expected on government “stress tests”, and several large and midsize banks in recent weeks have successfully raised capital through public stock offerings.
BankUnited, based on Coral Gables, is a high-profile victim of the banking crisis. Its problems stemmed largely from its forays into risky housing loans. The bank, founded in 1984, specialised in an exotic type of mortgage to people living outside the US who wanted to buy property in Florida. As of June 30, 2008, BankUnited was holding about $US1.4 billion of these so-called “non-resident alien” mortgages, representing 11.4 per cent of the bank’s total loan portfolio.
Some investors had long questioned BankUnited’s emphasis on such loans, which primarily went to people living in Latin America who wanted a Florida home for vacation or investment purposes. Sceptics argued the loans were considerably riskier than mortgages to US residents because the loans didn’t finance borrowers’ primary residences.
BankUnited holds about 2.1 per cent of deposits in Florida, according to the latest figures.
As BankUnited struggled, it caused problems for the federal government. In March, the Treasury Department placed the acting head the Office of Thrift Supervision on leave amid allegations the agency allowed BankUnited to improperly report its financial condition as healthier than it was. The Treasury is still investigating the issue. Many people have called for the government to abolish the OTS because of its supervision of several banks that have failed in the past year, including Washington Mutual, IndyMac and Downey Savings & Loan.
When word recently leaked that Mr Kanas and other investors were contemplating investing in BankUnited, markets cheered the news as a long-awaited sign investors were starting to tiptoe back into the beleaguered industry.
The failure may douse those hopes. Investors were willing to pump money into BankUnited only after regulators seized it and agreed to protect investors against most losses on the bank’s troubled loans. That doesn’t bode well for other troubled banks looking to lure outside capital.