Lender implodes from exposure to condo loans.
Corus Bank, a major commercial real estate lender, vanished from the marketplace in September after federal regulators seized the Chicago-based bank and its offices reopened as part of MB Financial Bank, also headquartered in Chicago. The failure highlights the growing role of soured commercial real estate loans in bank distress.
“The bank had a high concentration in condominium loans. That was the main area that they had problems,” says Dean DeBuck, a spokesman for the U.S. Comptroller of the Currency, which oversees national banks and ordered the closure. They were condo construction and rehabilitation loans.
The troubled condo loans mainly originated in Florida, Southern California, Washington, D.C., Las Vegas, Atlanta and Chicago. Corus also was a big player in other real estate sectors. For instance, it was the primary lender for a $300 million loan for the W Austin Hotel and Residences in Austin, Texas.
MB Financial bought $3 billion of Corus assets, and regulators are arranging the sale of another $4 billion in commercial real estate assets through private placement channels, says LaJuan Williams-Dickerson, a spokeswoman for the Federal Deposit Insurance Corp. (FDIC), which was appointed receiver after the closure. The sale of assets is expected to be completed in October.
MB Financial is paying the FDIC a premium of 0.2% to assume the Corus deposits. The $3 billion in assets it bought are mainly in the form of cash and marketable securities, according to the FDIC.
Meanwhile, the failed bank's 11 branches are functioning under MB Financial's name. Federal officials have assured depositors that all their funds are protected and available. “It is business as usual. The only thing the customer would notice is that the sign on the door has changed,” says Williams-Dickerson.
Corus ranked 19th on National Real Estate Investor's list of the nation's top 25 direct lenders with $1.2 billion in financing provided to the commercial real estate industry in 2008. At the time of its closure, the bank had assets of $7 billion and deposits of about $7 billion, according to the FDIC.
The Chicago bank was one of three lending institutions seized by state and federal authorities on Sept. 11. The State of Washington closed Venture Bank while Minnesota regulators shut down Brickwell Community Bank in Woodbury, Minn.
Across the country, 97 bank failed as of Sept. 25, compared with 26 for all of 2008, according to the FDIC. The latest to close was Georgian Bank in Atlanta. First Citizens Bank and Trust Co., based in Columbia, S.C. assumed the deposits.
While the economic downturn was a major contributor to the failures, there are other factors, says Williams-Dickerson. “The regulators could give you more reasons these banks are closing, but I think they all have been impacted by commercial real estate issues.”
Although depositors' funds are protected, the same does not hold true for shareholders' investments. “Depositors would come first in terms of the payout of dividends of the asset to make them whole. Shareholders really aren't likely to recoup any of their money. They're down the list in terms of the group of people who will be paid out by the FDIC,” says Williams-Dickerson of the FDIC.
Corus Bank had no publicly owned stock. Equity shareholders were invested in the holding company, Corus Bankshares Inc., according to the FDIC. After depositors, the priority for paying claims includes general unsecured creditors, subordinated debt, and lastly stockholders.
The FDIC insures deposits for the nation's 8,195 banks and savings and loan institutions.