Occupy Wall Street has deposited donated funds in New York-based Amalgamated Bank but the FDIC has a bulls eye on the bank’s executives. At the end of August the federal regulator issued a scathing enforcement action calling for a third party review of the banks management and issuing a directive for the bank to lower its leverage ratios to 7 percent within a year. But that’s not all the FDIC is unhappy about. It appears some creative accounting for non performing loans are an issue.
According to the FDIC enforcement action the bank isn’t charging off its nonperforming loans that are more than 90 days delinquent. Instead it appears the bank’s been issuing new loans (through a restructuring) to pay off the delinquent loans and not booking the delinquent loans as a charge off.
This is important to the bank’s bottom line because they are required to book a charge off, which would affect the banks earnings, their loan loss reserves or their capital levels.
Ralph Hutchinson, a former federal regulator who now consults on bank fraud says, “They are masking the strength of the bank. The FDIC goes ballistic when they see banks do this. Essentially they are falsifying financials which could be considered fraud.”
The FDIC gave the bank 60 days to start booking loss charge offs and are not allowed to extend credit to borrowers over 90 days delinquent unless they can prove there is a viable workout plan.
The enforcement action states: “The bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified “Loss” in the report of examination dated June 14th 2010 issued jointly by the FDIC and the New York State Department of Banking that have not been previously collected or charged off.”
It’s no wonder some of the banks executives have jumped ship in the last six months. According to people who have worked for the bank there has been mass exodus of bank executives recently that includes the president. There is also the issue of board member Bruce Raynor who had to resign from his garment union leadership position after allegations of misconduct regarding his union expense reports.
CNBC’s John Carney reported last week that Occupy Wall Street raised $75k in about a week via small individual donations of up to $85 a person. Today we learned that total has grown to $300k. Except it’s odd that the Bank protestors, who inspired an international protest on Saturday, choose to put their money in a community bank that appears to be executing some of the fraud they are speaking out against.
I am still awaiting a call back from an Amalgamated Bank press person. Stay tuned as this story develops.
UPDATE 4pm: An outside press person for Amalgamated confirmed Patrick O’Sullivan, who ran the asset management group, left also this summer. You know before the enforcement action was made public.
UPDATE 5pm: An Amalgamated outside press person points out Wilbur Ross and Ron Burkle investment funds have verbally committed to invest $50 million each in the bank’s common stock. The FDIC and other common shareholders will have to approve this but if it goes through that could help solve their leverage ratio problems. According to Ralph Hutchinson the bigger issue though is the likelihood the bank will have to restate bank call reports. These are the financial loan level operating reports FDIC-backed banks are required to file.