Dedicated to Deposits: Deals, Data, and Discussion

Rare Thursday Bank Closure - BankUnited, FSB

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BankUnited
BankUnited, FSB, the largest bank headquartered in Florida, was closed today by federal regulators. This is only the second time in recent history that a bank was closed on Thursday instead of Friday (The last one was WaMu's closure.) Except for the closure coming on a Thursday, it wasn't much of a surprise. Bloomberg published leaks of the bidding process on Tuesday. A consortium of investors and private equity firms won the bid and will assume the banking operations under a newly chartered bank named BankUnited.

For regular depositors, all of their deposits, even those over the FDIC insurance limits, were transferred to the new bank. The main concern for those with CDs is whether the new bank will choose to let the original CD rates continue until maturity or will it choose to lower the rates. According to the FDIC, "BankUnited will be reviewing rates and will notify you." However, you should be free to withdraw funds without an early withdrawal penalty.

For brokered deposits, it's a little more complicated. Often the assuming bank decides not to assume any brokered deposits since they don't feel they have anything to gain from those customers. However, in this case, it appears most of the brokered deposits will be transferred to BankUnited. Here's the excerpt from the FDIC Q&A #3:
All deposits comprised of principal and interest through the date of the bank failure, EXCLUDING deposits in the name of CEDE & CO, will be funded by the FDIC and transferred to the assuming bank. Funds representing principal and interest through the date of the bank failure for the CEDE & Co., brokered CDs will be paid directly by the FDIC [...] Be advised, however, that from and after the date of closing, BankUnited will accrue and pay interest on deposit liabilities at a rate it shall determine; accordingly, BankUnited shall permit depositors, including brokered depositors, impacted by reduced interest rates, to withdraw their deposits without penalty for early withdrawal.

Except for the possibility of losing the CD rate lock, BankUnited, FSB depositors shouldn't have any problems. Shareholders, however, will likely be wiped out similar to WaMu shareholders last year.

Another interesting thing to note about this closure is the cost to the FDIC's Deposit Insurance Fund which is estimated to be $4.9 billion. BankUnited, FSB is the largest bank to be closed since Downey Savings & Loan Association was closed in November 2008. In that case, the FDIC estimated a cost of only $1.4 billion even though Downey Savings was the same size as BankUnited, FSB in terms of assets ($12.8 billion).

Here's a summary of today's bank failure:

34th Bank Failure of 2009
  • FDIC Press Release
  • Closed Bank: Bank United, FSB
  • Location: Coral Gables, FL
  • Size: 86 offices, $12.8 billion in assets, $8.6 billion deposits
  • Possible Uninsured Deposits: All deposits transferred, excluding $348 million in brokered deposits
  • Acquiring Bank: BankUnited, a newly chartered federal savings bank
  • Estimated Cost to Deposit Insurance Fund: $4.9 billion
  • Financial Ratings: 0 star at BauerFinancial, 1 star (lowest) at Bankrate.com
References:

Update 5/24/09: A reader reported being informed on 5/22/09 by BankUnited that his CDs would continue to maturity without rate changes.

  Tags: BankUnited

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Comments
4 Comments.
Comment #1 by Anonymous posted on
Anonymous
What strikes me about this is the SIZE of the failed bank. My personal vulnerability is Corus Bank, which is larger still in dollar terms. Corus also has far too much exposure to sand state commercial real estate. When the Corus cannon fires it's gonna be a big BOOM. Sure hope it's not soon.

1
Comment #2 by Joe (anonymous) posted on
Joe
I've got to wonder if the leak to Bloomberg led to the Thursday (early) takeover.

1
Comment #3 by Anonymous posted on
Anonymous
I guess it won't be long till Ocean Bank fails, and Corus Bank has till mid-July to raise capital.

1
Comment #4 by Anonymous posted on
Anonymous
Corus bank has to be losing a lot of deposit money this month. Many of the good cd rates they were giving 6 months ago have expired, with nothing good to replace it with. I had two cds mature this month and pulled over 100K. I wonder how many others are doing the same thing at a time when they are trying to raise capital?

1