ProPublica.org, which continues to produce the finest journalism on the web, has published two big stories in recent days that connect with their ongoing scrutiny of the 2008-09 financial meltdown.
In one story, ProPublica details how a warning sent to the U.S. Treasury Department went unheeded, and the ensuing TARP loan to California’s United Commercial Bank turned into a disaster.
In the second story, a Miami bank rocketed to the big time out of nowhere during the housing bubble. When the bubble burst, U.S. Century Bank received TARP money but quickly started a financial slide.
It was later learned that they were giving out so many loans to cronies that critics called the bank an ATM for insiders. Now, the lender is teetering on bankruptcy due to poor-performing loans.
Here’s a taste of the story about United Commercial Bank:
“The U.S. Treasury Department had just announced preliminary approval of $299 million in taxpayer support for California’s United Commercial Bank when the email landed.
“’Wow… you guys are either making a big statement with this one or your ‘gatekeeper’ is incompetent,’ warned the anonymous missive, sent in October 2008 to the Treasury and obtained by ProPublica through a Freedom of Information Act request. ‘This is one of the worst loan portfolios in the country run by one of the worst CEOs (and a lying CEO at that).’
“The warning went unheeded. Treasury pushed ahead and provided United Commercial Bank with funds under a part of the Troubled Asset Relief Program that was aimed at bolstering healthy banks.
“But within months of getting bailout funds, things began to unravel.
“The bank disclosed publicly in May 2009 that it was restating its 2008 financial reports.
“It announced in July it would stop paying dividends on its stocks, including the shares bought by Treasury.
“In September, the bank’s audit committee wrapped up an internal investigation that found “deliberate and improper actions and omissions” by certain bank officials.
“And in November 2009, United Commercial Bank became the first bailout recipient to fail, wiping out Treasury’s investment of almost $300 million.
Former bank executives now face civil and criminal charges. Federal officials also are moving to bar former CEO Thomas Wu and nine other former executives from the banking industry altogether, citing their “personal dishonesty” and “a pattern of misconduct.”
“Two former executives — though notably, not the CEO — are the first senior executives at a bailed-out bank to face criminal charges. They are accused of hiding the bank’s loan losses from investors, auditors and regulators.
When the anonymous tip reached the Treasury, timestamps on the email chain show that it was quickly forwarded to upper-level Treasury officials, including Neel Kashkari, who was then Assistant Treasury Secretary and in charge of TARP.
Other Treasury officials pulled the bank’s securities filings, which disclosed that the bank’s auditor, PricewaterhouseCoopers, declined to continue on as its auditor.
The email was also forwarded to several FDIC officials with a note that said, “We were provided the following feedback on UCBH,” United Commercial Bank’s parent company. “Thought you should be aware. Let us know if you received similar feedback and how/if you are responding.” The Treasury Department funded the bank only after its primary regulator certified it was financially viable. That regulator was the FDIC.
To read the full story, click here.
Here’s a portion of the story about Miami’s U.S. Century bank:
“U.S. Century Bank rocketed into being in 2002, with investors pouring in $30 million over three months. Four years later, the Miami-based bank boasted assets of more than $1 billion, had consistently shown a profit, and had won plaudits from banking analysts such as BauerFinancial and glowing reviews from The Miami Herald and other local media.
“In 2009, as the financial crisis hit, the bank received a vote of confidence from the federal government when it won a $50.2 million loan under the federal Trouble Assets Relief Program — money earmarked for healthy banks.
“It was the most TARP money given to a Florida bank. ‘This represents an important recognition for U.S. Century Bank as it acknowledges our strength, stability and good standing as a strong and healthy financial institution,’ Ramon Rasco, the bank’s chairman, said.
“In fact, U.S. Century was ailing when it received the TARP loan. Today, the bank teeters on the edge of collapse as it operates under an extraordinary consent order, issued in June by the Federal Deposit Insurance Corp. Sweeping in scope, the (FDIC) order demands an overhaul, including changes of top executives, a review of all loans, implementation of a program to guard against money laundering, and an increase in the bank’s capital.
“The rise and fall of U.S. Century, while certainly more extreme than most banks, exemplifies the fast-and-loose banking culture that led to the financial crisis, which continues to drag down the global economy. It also epitomizes both the failure to regulate the banking sector during the pre-crisis boom years and the slipshod approach to the bailout that followed the bust. Above all, it’s about losers and winners. “The losers are taxpayers and local residents grappling with the ill effects of suburban sprawl. The winners appear to be a group of wealthy and politically connected businessmen who created a bank that served as their own corporate ATM, funneling tens of millions of dollars to ventures in which they had a stake.
“’Insider loans’ — loans to directors or officers of the bank — at their peak exceeded 94 percent of U.S. Century’s total equity capital. While high levels of insider lending are not uncommon in the early years of a bank startup, at U.S. Century they continued for years. Many of these loans were for speculative real-estate projects, some of which are now defunct or gravely troubled.
“Compared to all commercial banks in the United States, U.S. Century was in the top 7 percent for insider loans as a proportion of total loans, according to an analysis of insider lending from 2005 through June 2011 done for ProPublica by banking analyst Trepp LLC. During 2005, the bank had one of its most prolific periods of insider lending — it was in the top quarter of 1 percent, ranking 20th out of 7,954 commercial banks in the nation at the time.
To read the full story, click here.
