Must Be Nice (More PCA Abuse; ShoreBank)

I love these announcements…

ShoreBank, Chicago, Illinois, was closed today by the Illinois Department of Financial and Professional Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Urban Partnership Bank, Chicago, Illinois, a newly-chartered institution, to assume all of the deposits of ShoreBank.

Newly-chartered eh?  By whom?  Wouldn’t be the same people that ran Shorebank into the ground, would they?

As of June 30, 2010, ShoreBank had approximately $2.16 billion in total assets and $1.54 billion in total deposits.

How do you go bankrupt when your “assets” are worth $2.16 billion and your liabilities (deposits are liabilities) are $1.54 billion?

Oh, I know, I know – the “assets” aren’t really worth $2.16 billion, right?

Urban Partnership Bank will pay the FDIC a premium of 0.50 percent to assume all of the deposits of ShoreBank. In addition to assuming all of the deposits of the failed bank, Urban Partnership Bank agreed to purchase essentially all of the assets except for the marketable securities and fixed assets.

Uh huh.  At what price?  Oh wait – we can figure that one out.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $367.7 million.

Ah, that’s nice.  So let’s see if I can do the math here.

$1.54 billion * 1.005 (they agreed to pay half a percent markup) = $1.547 billion.

Assets must be greater than liabilities by at least six percent to be “well-capitalized.”  If the DIF cost was $367.7 million, then the “assets” could be worth (at least) $1.64 billion.

Since they’re “marked” at $2.16 billion, if we subtract $367.7 million from that (the alleged “estimated loss”) we find that number to be $1.79 billion.

Hmmm… those numbers don’t add.  So what sort of hinky thing is going on here?

That’s a good question. 

A better one is this: How does a bank that allegedly has a positive net worth – that is, assets > liabilities, and in fact greater by the minimum ratio, wind up bankrupt in the first place?

Something smells here, and the least of it isn’t the involvement of a “consortium” of big firms in the institution, including Goldman, GE, JPM Morgan and Citigroup – although their “rescue bid” was, if reports are accurate, in escrow and thus not available as working or Tier capital.

Still not seeing “Prompt Corrective Action” (you know, that funny thing called a law) Ms. Bair!