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Struggling to Survive

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Struggling to SurviveRecent earnings and corporate activity

September 18, 2008

By SAM GARCIA

 

More financial institutions revealed their exposure to investments in the government sponsored enterprises — with two warning that their capital standing would be impaired. The collapse in value of some Fannie Mae securities have prompted a class action against several investment bankers tied to the offering. One financial firm continued to warn about its ability to survive, while another is fighting an involuntary bankruptcy.

But first, National City Corp. shareholders approved an increase in the number of authorized common shares to 5 billion from 1.4 billion, a statement Monday said. In addition, Thomas A. Richlovsky was appointed interim chief financial officer of the Cleveland-based bank.

An announcement Monday indicated Impac Mortgage Holdings Inc. had a $31 million first-half loss, vastly improving from a $274 million loss a year earlier. A $220 million reverse repurchase line has been restructured, all other repurchase facilities have been terminated, some of its repurchase claims have been settled and plans are underway to cut its preferred dividend and preferred trust interest payments.

The real estate investment trust also earned $9 million in advisory fees connected with the marketing and disposition of foreclosed properties, and it is in the midst of establishing a special servicing platform the will enable it to take advantage of opportunities within the distressed mortgage investment market.

Losses tied to the collapse of share prices for GSEs Fannie and Freddie Mac continued to pile up.

The Bank Holdings, the parent of Nevada Security Bank, said last week in a Securities and Exchange Commission filing that it held $15 million in preferred GSE shares. But a total writedown of the securities would still leave the Reno, Nev.-based company well-capitalized.

Central Bancorp Inc. said Friday it held $10 million in GSE perpetual preferred stock with unrealized losses of $0.8 million as of June 30. A total impairment would reduce its standing from well-capitalized to adequately capitalized because its total risk-based capital ratio would fall below 10 percent.

The preferred GSE holdings of Summit Financial Group Inc. amounted to $5 million on Sept. 8. But a complete writedown is not expected to impair the well-capitalized status of Summit or subsidiary Summit Community Bank.

Service Bancorp Inc. announced Friday that its GSE preferred stock holdings had a cost of $7 million as of June 30. The value of those shares had tumbled to $0.7 million as of Sept. 11, and the Medway, Mass.-based company warned it will likely lose its well-capitalized standing as a result of the deterioration.

“The bank has briefed its primary federal and state regulators, the FDIC and the Massachusetts Division of Banks, regarding the expected other-than- temporary impairment charge,” Service Bancorp stated. “In consultation with the FDIC and the Division of Banks, the bank will be developing a plan to restore the bank to a ‘well-capitalized’ status generally and to increase its leverage capital ratio to at least 7.0 percent.”

Polonia Bancorp revealed Monday that it had $0.4 million in Freddie’s stock, though a total loss would not impair its well-capitalized status.

A class action lawsuit was filed in U.S. District Court, Southern District of New York, against Merrill Lynch, Pierce, Fenner & Smith Inc.; Citigroup Global Markets Inc., Morgan Stanley & Co. Inc., UBS Securities LLC and Wachovia Capital Markets LLC, a press release Wednesday said. The case was filed by Pomerantz Haudek Block Grossman & Gross LLP on behalf of purchasers of Fannie’s $2 billion offering of 8.25 percent non-cumulative preferred stock, series T over alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder.

Hastings Bancorp Inc. has agreed with the Federal Reserve Board of Kansas City to conserve capital, the Fed said yesterday. The Nebraska bank is obligated under the agreement to submit a plan to the fed.

The Federal Reserve Board announced last week that it terminated a cease-and-desist order against ABN AMRO Bank N.V., Amsterdam, The Netherlands on Sept. 10.

Republic Mortgage Insurance Co. will stop excess of loss reinsurance cessions to lenders’ captive insurance companies, parent Old Republic International Corp. said Wednesday. Soaring claim costs and reduced profitability caused by ongoing dislocations in the housing and related mortgage lending industries have rendered excess of loss reinsurance arrangements inefficient from economic capital management standpoints.

Thornburg Mortgage Inc. is again warning about its ongoing viability given outstanding margin calls. The company said Monday it is trying to reach a satisfactory agreement is reached with counterparties so it can close an exchange offer currently under extension.

A petition for involuntary Chapter 7 bankruptcy was filed Friday against NovaStar Mortgage Inc. in U.S. Bankruptcy Court for the District of Delaware in Wilmington, Del., by Taberna Preferred Funding I Ltd., Taberna Preferred Funding II Ltd. and Kodiak CDO I Ltd., an SEC filing last week indicated. NovaStar said it “intends to aggressively contest the involuntary bankruptcy petition and will pursue all available grounds for dismissal.”

Morgan Stanley reported Tuesday a $1.4 billion third-quarter profit, reflecting net writedowns in the mortgage proprietary trading business of $0.6 billion. Yesterday, the Wall Street Journal said the New York-based company was in merger talks with Wachovia Corp.

ACORN has filed formal comments with the Office of Thrift Supervision calling for public hearings on Republic Bancorp’s application to convert from a bank holding company regulated by the Federal Deposit Insurance Corporation to a savings and loan regulated by the OTS. The financial institution watchdog claims Republic may be playing “one regulatory agency off another” in an effort to exploit its “usurious” tax refund anticipation lending business.

Written Agreement by and between Hastings Bancorp Inc., Hastings, Nebraska, and Federal Reserve Bank of Kansas City, Kansas City, Missouri
Docket No. 08-021-WA/RB-HC Sept. 10, 2008 (Board of Governors of the Federal Reserve System, Washington, D.C.)

ABN AMRO Bank N.V., Amsterdam, The Netherlands
Cease and Desist Order dated December 19, 2005

In re NovaStar Mortgage Inc.
Case No. 08-12125-CSS, Sept. 12, 2008 (U.S. Bankruptcy Court for the District of Delaware in Wilmington, Delaware)

 


Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of MortgageDaily.com.

e-mail: mtgsam@aol.com


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