Guaranty Financial Group told to turn over to FDIC for receivership

July 27, 2009 by · Leave a Comment
Filed under: Bank Failure 

Interesting little article on the 2nd largest bank in Texas being shut down.  From the article, it looks like they made a number of loans to home-builders during the recent housing bubble.  Many of these are now into default, reducing their capital level below the prescribed regulation.   This is a large failure, the bank had $16 billion in assets at last check.  That is going to put more draw on the FDIC’s already limited resources with the multitude of bank failure in 2008 & 2009.  What I did like about this is the fact that the bank was first given some time to bring itself into regulation before it was ultimately shut down, that is the trend I want to see.   I don’t like having banks play around with the accounting rules when they have obviously have too much liability for themselves and their depositors.  Strong banks must survive and the weak one will be consolidated.

News (Bloomberg):

Guaranty Financial Group Inc., the Texas bank spun off in 2007 by a forest products company, may become the biggest lender to collapse this year, wiping out investments by billionaire Carl Icahn’s funds and Omni Hotels owner Robert Rowling.

Guaranty can’t raise capital demanded by regulators and will probably fail, according to a filing yesterday with the Securities and Exchange Commission. The Office of Thrift Supervision has taken over functions from the board, directed the bank to turn itself over to the Federal Deposit Insurance Corp. and is pursuing transactions likely to wipe out shareholders, the Austin-based company said.

A failure would be the largest among consumer lenders since September, when regulators seized the banking unit of Washington Mutual Inc. Icahn in 2007 pressed Guaranty’s owner, Austin-based Temple-Inland Inc., to spin off the thrift when values for financial firms were high, said Dan Bass, managing director of Carson Medlin Co., an investment bank focused on lenders.

“It was an accurate decision, but the timing couldn’t have been worse,” said Bass, based in Houston. Guaranty, which began trading in December 2007 at $17.50, dropped to 15 cents at 4:03 p.m. in New York Stock Exchange composite transactions.

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