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Big TX Bank Warns of Imminent Failure

Guaranty Bank set for receivership

July 24, 2009

By MortgageDaily.com staff


A $16 billion Texas-based bank has disclosed that it was unable to obtain critically needed capital and will likely fail. As the institution awaits seizure, the board of directors has ceded control to its federal banking regulator.

The disclosure was made by Guaranty Financial Group Inc. yesterday in a filing with the Securities and Exchange Commission.

The Austin-based parent of Guaranty Bank said a capital-raising plan that it has been pursuing with private investors, including its current principal stockholders, has collapsed. Guaranty had hoped to arrange an "open bank assistance transaction" with the Federal Deposit Insurance Corporation and the Office of Thrift Supervision.

Guaranty warned earlier this month that its only hope of complying with an OTS cease-and-desist order was if the FDIC decided that the plan was the least costly alternative. Shareholder equity would still have been wiped out if the plan had been approved.

But an amended financial statement for the quarter ended March 31 filed on July 17 at the direction of the OTS reflected $1.5 billion in write downs on mortgage-backed securities and an $0.1 billion adjustment to goodwill. The restated financial pushed bank capital into negative territory.

The adjustments left Guaranty's core capital ratio at negative 5.78 percent and its total risk-based capital ratio at negative 5.52 percent.

"Both of these ratios result in the bank being critically under-capitalized," yesterday's filing said. "The company believes that these write downs foreclosed the possibility of applying for open bank assistance."

Guaranty went on to say that its primary stockholders have not committed to further capital infusions, and it sees little or no chance of raising enough capital to comply with the cease-and-desist order.

"In light of these developments, the company believes that it is probable that it will not be able to continue as a going concern," according to the filing.

The OTS asked Guaranty's board of directors to approve sending the bank into receivership under the FDIC, which has been done. The actual seizure of the bank had not occurred, however, as of the filing. Until that occurs, the OTS is exercising significant control over the board's functions.

Guaranty Bank, which opened up for business in 1988, said it operates more than 150 banking centers across Texas and California. At the end of March, it employed 1,761 people, according to FDIC data.

While the bank still reports assets of $16 billion, the write offs cut the total to $14.4 billion, including $2.1 billion in residential loans, $2.1 billion in commercial mortgages and $3.0 billion in construction-and-land-development loans.

Guaranty Financial claims to be "the second largest publicly-traded financial services holding company headquartered in Texas and one of the 50 largest publicly-traded financial services companies based in the U.S."

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