Dedicated to Deposits: Deals, Data, and Discussion

UmbrellaBank and Imperial Capital CD Holders Take a Beating

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As I reported on December 18th, two banks that offered internet CDs failed: New South Federal Savings Bank (parent of UmbrellaBank) and Imperial Capital Bank. Beal Bank assumed the deposits of New South Federal and City National Bank assumed Imperial Capital deposits. Unfortunately, neither Beal nor City National agreed to honor existing CD rates to maturity. Depositors are free to make a penalty-free early withdrawal. Several readers who had CDs with these failed banks have reported on the new rates. They're not pretty.

Beal Bank is reseting UmbrellaBank 1-year CDs to 0.70% APY. As one reader pointed out, Beal Bank is offering 1.26% APY for new 1-year CDs, so the 0.70% seems especially unfair. Another upsetting issue reported is the time it's taking Beal Bank to close the CD and mail the check. A reader reported to have faxed in his request on December 21st. On December 29th he called Beal Bank and they said they have not yet started to process his request.

City National Bank reset Imperial Capital Bank CDs to the following rates effective December 19th:
  • 0.85% 1 year
  • 1.15% 2 year
  • 1.50% 3 year
  • 2.00% 4 year
  • 2.15% 5 year
The above examples show the main risk of having CDs at a troubled bank. Your high rate lock may be lost which can be painful in a low-rate environment. Also, as we're seeing at Beal Bank, the time it takes to make the early withdrawal may not be quick.

One the plus side, both Beal and City National agreed to assume all deposits, even those above the FDIC limit. Banks assuming all deposits of failed banks has been very common this year. I wonder if the FDIC has pressured buyers into assuming all deposits, and I wonder if this may have reduced the chances that the assuming banks would honor existing CD rates to maturity. I think it would be fairer for the assuming bank not to assume deposits over the FDIC limit in exchange for honoring existing CD rates to maturity.

Thanks to the readers who commented on the new reset rates. Please leave a comment if you learn of any additional info on these or other failed banks.

References:

Related Pages: Beal Bank, City National Bank

Related Posts

Comments
24 Comments.
Comment #1 by Anonymous posted on
Anonymous
In the situation described, I don't know if I'd call the failure to process a redemption between Dec. 21 and Dec. 29 terribly long, given the Christmas holiday weekend and the suddenness of the additional burden placed on banking staff.
However, I do wonder: Is there ANY kind of regulation specifying how long is too long? And if so, who would an account holder contact about enforcement?
I, too, am/was an umbrella.com account holder and am also waiting to see how long my redemptions take.

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Comment #2 by Anonymous posted on
Anonymous
.


>> I wonder if the FDIC has
>> pressured buyers into assuming
>> all deposits

Hmm ... What kind of pressure can an insurance company apply to the parties that it insures? Especially the same parties that pay for the operations of the insurance company.

Hard bargain? Sure.

Pressure? ... Don't think so.

The buyer is always free to walk away, if the deal offered by the seller is not reasonable.


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Comment #3 by Anonymous posted on
Anonymous
.


>> Beal Bank is offering 1.26% APY
>> for new 1-year CDs, so the 0.70%
>> seems especially unfair.

Aha ... And this case the depositors are free to walk away if they find the rate to unfair!

Oh yes ... legally the bank management must be fair to its owners (shareholders). The interests of the owners must come ahead of the depositors.


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Comment #4 by David (anonymous) posted on
David
In many cases the FDIC has quite a bit of leverage in negotiating these takeovers for the simple reason that they can be very lucrative for the successor institution. For instance, the shares of East West Bancorp and MB Financial have both soared in recent months after they took over failed competitors. See attached article:
http://www.thestreet.com/story/10651039/1/_msnh/quietly-raking-it-in-from-failed-banks.html?cm_ven=MSNH&cm_cat=FREE&cm_ite=NA

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Comment #5 by Anonymous posted on
Anonymous
.


So ... according to the article referenced above, the author Dan Freed has written "Another rich guy almost certainly getting a lot richer is Andy Beal, head of privately-held Beal Bank in Plano, Texas, which picked up its own little pre-Christmas gift from the FDIC on Friday in the form of New South Federal Savings Bank of Irondale, Alabama.". ... Now that does not appear like pressure from FDIC at all ... quite the opposite actually.

So ... Question to the Banking Guy ... What pressure?


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Comment #6 by David (anonymous) posted on
David
The FDIC HAS leverage is not willing to USE that leverage. I believe that was the point the BG was making.

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Comment #7 by Anonymous posted on
Anonymous
David,

What BG has written is:

I wonder if the FDIC has pressured buyers into assuming all deposits,

So I question what pressure banking buys is talking about?

- Anon

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Comment #8 by Anonymous posted on
Anonymous
What I found questionable is how they made the rate cut announcement. They have yet to put in on the website. The snailmail letter was dated 12/23 with an attached rate cut notice dated 12/19. In addition when I was finally able to get through to a customer service person on 12/28 she knew nothing about the rate drop.

It is one thing to drop rates (expected) it is another to do it in a slow and hidden fashion.

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Comment #9 by Anonymous posted on
Anonymous
" Aha ... And this case the depositors are free to walk away if they find the rate to unfair!

Oh yes ... legally the bank management must be fair to its owners (shareholders). The interests of the owners must come ahead of the depositors. "

How naive you must be, the bank can not exists without its customers and their deposits.
If most of the customers walk out, the bank will be shut down by FDIC as not conforming entity.
You must be the know it all guy, I wander how shallow is your knowledge and your inappropriate comments posted by you.

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Comment #10 by Anonymous posted on
Anonymous
" Hmm ... What kind of pressure can an insurance company apply to the parties that it insures? Especially the same parties that pay for the operations of the insurance company. "

FDIC is not just insurance company, it is also regulator of banking business, again your shallow knowledge shows up as yet another inappropriate comment.

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Comment #11 by Anonymous posted on
Anonymous
.


>> How naive you must be, the bank
>> can not exists without its
>> customers and their deposits.
>> If most of the customers walk
>> out, the bank will be shut down
>> by FDIC as not conforming entity.

Hmm ... a little less than yourself!

Are you implying that most customers will be affected by this rate-drop? That's quite illogical.

The bank already has an established existing customer base. The new customers of course will have a mix of Checking, Saving, CD, Credit-card, Loan, Mortgage ... so the only affected customers are the ones with CD. Rest have no reason to walk. ...

Actually it is you who is demonstrating illogical thinking. :-)


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Comment #12 by Anonymous posted on
Anonymous
.


>> FDIC is not just insurance
>> company, it is also regulator of
>> banking business, again your
>> shallow knowledge shows up as yet
>> another inappropriate comment.


Muhaa ... Do you know the full form of FDIC? No?

Federal Deposit Insurance Corporation. Primary function of FDIC is to insure the deposits, rest is secondary.


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Comment #13 by Anonymous posted on
Anonymous
Since a depositor has the right to withdraw his money in the case of a takeover, ask to talk to a manager and request the rate being offered for "new" money and if they refuse, pull your funds out. There are a number of banks now offering 2.0% APY for money market accounts and short term cd's.

If the bank delays sending out your check in a reasonable time( say 4-5 days tops after the request), call the bank president's office and ask to speak to someone about an account problem and when you get a rep in the executive office explain the time delay, advise that you feel the time they took was unreasonable and ask that they give you the interest on your funds to the day you receive your check. In some cases, mentioning your intention to seek redress for their unjust enrichment (they are getting the float on your funds) in a local "small claims" court may provide the needed trick.
I find that dealing with a local CSR or even a branch manager is ineffective as they lack the power to do anything.

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Comment #14 by Anonymous posted on
Anonymous
"""" Muhaa ... Do you know the full form of FDIC? No? """"

Neither you do, therefore your comments are moot.
___________________________________

"""" Hmm ... a little less than yourself! """"

Are you psychic or a moron, you can not be both.

1
Comment #15 by Anonymous posted on
Anonymous
More on the messy takeover of Umbrella by Beal Bank: I have two CDs and a MM there. On Dec. 29 I received the mailing telling me that as of Dec. 19 rates had been slashed.

Went to the umbrellabank.com website and discovered it does not even list one of my CDs. Ironic, since it was funded by a withdrawal from the MM account. Email and webform inquiry citing the CD account number has received no response as of afternoon Dec. 30.

Have been through a good number of FDIC takeovers. No real problems until this Beal Bank takeover.

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Comment #16 by Anonymous posted on
Anonymous
When JP Morgan took over Wamu, we were VERY fortunate to keep the 5% rates WAMU had been pumping out in its final weeks.

I'm surprised it's taken this long for banks to take a hard line on CD rates.

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Comment #17 by Anonymous posted on
Anonymous
The drop in the new rates indicate that the buying bank has no real interest in keeping those type of accounts (except for those customers who are too lazy to rate shop). I have 1 account with Imperial Capital and used to have one with New South Federal. If City National Bank drops the checking account rate by a wide margin, then I will also drop them as well.

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Comment #18 by gordon (anonymous) posted on
gordon
Hi all- I'm new here, so sorry if you have already discussed this. Are you all aware that as of Jan 1, 2010, the FDIC is mandating that any bank nationally w/ FDIC insurance on the troubled(close to 500, you can find the troubled list on calculatedrisk.com)list CAN NOT PAY MORE THAN 3/4% more than the national CD rate, unless they can prove locally the average is higher?
We have banked w/ Imperial here for years, and the rate went from 1.8% to .5% in this takeover. My wife is looking around, American Express looks to be the safest/highest yield for a company we don't expect to fail.

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Comment #19 by Anonymous posted on
Anonymous
Does anyone know if an acquiring bank can convert failed bank accounts to a lesser APY than their current posted APY rates?

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Comment #20 by Anonymous posted on
Anonymous
I am stunned about Beal's Bank poor handling of the former UmbrellaBank CD accounts. I talked to CSR, faxed my request, faxed to the CEO, talked to executive offices - no effect. Either Beal Bank is a Mom & Pop bank that does not know how to do business or - my impression - is taking advantage of cutomer's funds by delaying access. Obviously Beal Bank has no interest in retaining former UmbrellaBank customers. What a mess, these amateurs - never again. I Like the idea with the small claims court (have quite a few $$ tied up) - what other options for complaints are there?

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Comment #21 by Craig (anonymous) posted on
Craig
In exception to the delays experienced by Umbrella Bank refugees, I called a CSR on Monday (12/28), was given a reference # and faxed a request to wire funds out ($25). He was forthright about the 48-72 completion time which was finalized on Thursday. As for the discrepency in revised rates being half the current (mediocre) Beal Bank rates, he (a former Umbrella employee) could only speculate that Beal had no desire to retain CD-only customer accounts. Let's hope Andy had a fine holiday and do whatever we can to make the New Year less lucrative for this operation.

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Comment #22 by Anonymous posted on
Anonymous
I have a rate sheet from Umbrella Bank from exactly one year ago. There was a 2 year CD rate of 4.5% , but I guess they won't honor that rate anymore for the remainder of the term. Maybe they might get rid of the CD rate commitment and make all CDs market rate certificates?

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Comment #23 by Anonymous posted on
Anonymous
By transferring all of Umbrella Bank's deposits to Beal, the FDIC saved itself the time and expense of having to process a deposit insurance payout. Moreover, the notice to depositors I received from Beal is worded as if it was intended to address depositors that Beal has little if any serious prospect of keeping.

Face it, deposit rates are low and there's little prospect that Beal or any other bank would be interested in keeping a bunch of out-of-teritory depositors with high interest CDs happy.

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Comment #24 by Anonymous posted on
Anonymous
"Face it, deposit rates are low and there's little prospect that Beal or any other bank would be interested in keeping a bunch of out-of-teritory depositors with high interest CDs happy."

In-territory residence didn’t even qualify for published CD rates. A 12 mo Umbrella CD paying 2.20% was reduced to 0.69% – half their 1.25% rate. In this case it seems Beal wanted sticks and bricks without any customer baggage whatsoever.

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