Wednesday, December 24, 2008

More about banks and bailouts

Dec. 24, 2008

I read in the South Florida Business Journal:

BankUnited Financial expects $327M loss, gives cautions about future

BankUnited Financial Corp., the holding company for the largest bank based in Florida, expects to lose at least $327 million in the fourth quarter and warns of "substantial doubt" of its ability to operate as a going concern if it fails to raise capital.

In a notification of late filing with the Securities and Exchange Commission on Tuesday, the Coral Gables-based parent of BankUnited (NASDAQ: BKUNA) also acknowledged that the SEC’s Miami office began an informal inquiry into the company in October.

Bank United said it could not file its financial statements for the fiscal year ended Sept. 30 by Dec. 15, the SEC's usual 45-day window, because of adverse market conditions and an additional review of complex accounting and disclosure issues. That review is examining the company’s regulatory issues, liquidity and capital.

One discovery made by the bank is that it misclassified $449 million from securities sales as investing cash flows when they should have been classified as operating cash flows. The mistakes were made over a two-year period that ended Sept. 30, 2007.

The bank said it would restate its consolidated statement of cash flows if the mistake is determined to be a material event.

However, that accounting change would not impact cash, net income or earnings per share, the bank stated.

Bank United said it expects to file its annual report with the SEC sometime in January.

In a research note to clients Wednesday, Raymond James associate analyst Michael Rose said BankUnited appears to be in a "race against the clock in its efforts to survive." He maintained an underperform rating on its shares that encouraged investors to sell.

After signing a cease and desist agreement with the Office of Thrift Supervision in September, BankUnited has been working with federal regulators, who placed restrictions on its business practices and set a Dec. 31 deadline for the bank to raise its capital-to-asset ratios.

BankUnited, which previously said it was seeking $400 million, continues to seek more capital through an asset sale or an equity investment. The bank stated that if it does not raise the money by the end of the year, it doesn’t expect to meet the capital ratio requirement and could face “various enforcement actions regarding the bank” from federal regulators.

“We are in negotiations with a fund to raise capital and restructure our balance sheet,” BankUnited stated in the filing. “We cannot assure you that these negotiations will be successful. If such negotiations are not successful, there is substantial doubt about our ability to continue as a going concern.”

Philip van Doorn, senior banking analyst for The Ratings in Palm Beach Gardens, said BankUnited faces significant challenges in raising capital. It would be unlikely to receive federal aid, and it is hard for a potential investor to evaluate the bank's finances when it's having difficulty preparing financial statements, he said.

"A potential acquirer looking to expand its deposit footprint into BankUnited's territory might find other opportunities to acquire one or more healthier institutions," van Doorn said. "The potential acquirer could also wait until BankUnited or another local institution fails, so they could scoop up deposits and branches on the cheap, without being forced to take on the failed institution's bad loans."

After losing $209 million over the first three quarters of its fiscal year, BankUnited's holding company said it expects a loss of $327 million in its fourth quarter ended Sept. 30. That loss would be greater than the $261.6 million loss its BankUnited savings and loan subsidiary reported to the Federal Deposit Insurance Corp. for that quarter.

However, BankUnited cautioned that the holding company’s loss could grow “substantially larger” when it completes an analysis of how much it should reserve for loan losses to cover its payment option adjustable-rate mortgage portfolio.

These types of loans, where borrowers can pay less than the monthly accrued interest and let the balance grow, were major factors in the downfall of Washington Mutual and Wachovia Corp. this year.

“If the final earnings analysis results in a material level of additional losses and we are unsuccessful in our negotiations with a fund to increase capital, there is substantial doubt about our ability to continue as a going concern,” Bank United stated in its filing.

Bank United’s liquidity improved, as it had cash and equivalents of $1.2 billion as of Sept. 30. The bank’s management stated it believed there are enough liquid assets to meet the potential demands of customers “in an environment where financial institutions have experienced unexpected withdrawal rates.”

However, the holding corporation has a potential liquidity issue after pumping $80 million into the bank during the fiscal year and the cease and desist order prohibiting it from taking dividends from the bank. As of Sept. 30, the holding company had $28.4 million in liquid assets against $5.3 million in annual administrative expenses and $16.2 million in corporate debt that can’t be deferred.

The Bank United holding company has sufficient liquid assets to meet its obligations for about 16 months, but it can’t be assured that it can make debt payments once those assets are depleted, the company stated.


It seems like centuries ago, when I was called one day by a representative of Bank United who announced me that from that day on I wouldn't be able to send Bank United any more mortgage transactions.
I was at that time working as a mortgage broker, doing what I could to work honestly in an environment that I didn't seem to understand very well.

Bank United needed at least a deal every month, in order to accept to work with me! (or was it three deals? I don't remember exactly)

My frustration didn't last more than a few minutes, though.

I had in my lenders portfolio hundreds of other banks competing for my small business. Thousands of programs, conventional programs, Alternate-A, A-minus programs, B-lenders, C-lenders, sub-prime, hard lenders, you name it. A dizzying array of ways to lend money to all sectors of society; good credit, fair credit, bad credit, zero-down-payment, foreign national buyers, refinance, jumbo loans, investor loans, each lender with hundreds of possibilities.

The new denominations given to these new categories, as I understand it now, were some of the gimmicks used by many lenders to label and package their mortgage loans for sale to US and international investors. (do you mean suckers?)

I have been a bank manager in my youth. I thought I knew something about lending money to people and businesses. I have even studied this as a career.

I remember that there was a basic consideration when I was taught to underwrite, authorize or deny a loan: the borrower's capacity to repay the loan. Another element was the extent of the hard assets of the client, as well as the verification of the guarantees given by the borrower.

I guess the teachers of my generation didn't know anything about how to become a multimillionaire in a much easier way.

I wasn't a very successful mortgage broker during that period, I confess. It was the only time in my life when I wasn't one of the best at what I was doing.

Reading this kind of news is not a sweet revenge. Just a recollection.

Welcome to the Bailout era.

Henry B. Nathan is a Florida Real Estate Professional. Please visit my website: to search for

Florida Condos, Hallandale Condos, Aventura Condos, Hollywood Condos, Sunny Isles Condos

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