|A Texas bank tied to the father of mortgage-backed securities had hoped to strike a deal that would restore its capital standing. But instead, state banking regulators shut it down. California regulators also shut down a bank in that state. Between the two institutions, the federal bank insurance fund will take a $1.7 billion hit.
The Texas institution, Franklin Bank, S.S.B., was closed Friday by the Texas Department of Savings and Mortgage Lending.
The Federal Deposit Insurance Corporation was named receiver of the Houston-based firm.
Just a few days earlier, parent Franklin Bank Corp. had issued a statement indicating that it had received multiple proposals for transactions that would strengthen the capital position of its undercapitalized subsidiary.
Prosperity Bank, based in El Campo, Texas, acquired $0.9 billion of Franklin's $5.1 billion in assets and paid a 1.7 percent premium to assume Franklin's $3.7 billion in deposits. Franklin's 46 offices reopen today as Prosperity branches.
The FDIC expects Franklin's failure to cost it around $1.5 billion.
"Prosperity Bank's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives," a statement from the bank insurance fund said.
Franklin Bank Corp.'s chairman, Lew Ranieri, gained a reputation as the father of mortgage-backed securities while at Salomon Brothers in the 1980's. He briefly stepped in as chief executive officer when founder Anthony J. Nocella was ousted following the disclosure of bad mortgage accounting.
Also on Friday, the Commissioner of the California Department of Financial Institutions shut down Security Pacific Bank in Los Angeles.
FDIC, which was named receiver, said Pacific Western Bank -- also based in L.A. -- acquired Security Pacific's $450 million in deposits for a 2 percent premium. In addition, Pacific Western purchased $52 million of Security Pacific's $561 million in assets.
Security Pacific's failure will cost the FDIC fund $0.2 billion.
The closing of Franklin Bank and Security Pacific brings to 19 the number of federally insured financial institutions to fail this year.