It took them more than 24 hours but Occupy Wall Street’s new Union owned bank has decided to respond to reports that an FDIC enforcement action showed some not so safe banking practices. I’ve still been denied an interview with any of the banks newly placed executives nor have they answered questions about the glaring number of loans on their books that are not paying. So all we have is a public relations crafted statement that has been approved by the Bank’s new president Edward Grebow.
From the Bank:
“Amalgamated Bank was founded by the Amalgamated Clothing Workers of America and chartered by New York State in 1923. Its deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”). Amalgamated has been a bank for America’s working men and women since its inception and has always operated in a safe and sound manner.
In the aftermath of the financial crisis, Amalgamated Bank’s Board of Directors agreed (without admission of any violation) to the issuance of essentially identical Consent Orders by the FDIC and the New York State Banking Department. The Orders became effective on August 31, 2011.
Information provided by a former federal regulator, who was quoted in a recent news report about the Bank’s handling of its non-performing loan charge-offs, is totally inaccurate. The conclusion that the Bank was engaged in potentially fraudulent activity is both false and misleading.
Specifically, with regard to non-performing assets, all charge-offs identified during the 2009 examination were taken during the examination or shortly thereafter and are fully reflected in the Bank’s audited financial statements. Also, the Bank in late 2008 put in place a detailed process to identify and address loans that have the potential to be classified as non-performing assets, including an independent outside firm that reviews the Bank’s loan portfolio and related provisions for loss. Problem loans are monitored on a monthly basis through a rigorous quality review process, which the Bank’s Board and the regulators are familiar. In addition, the Bank identifies, and appropriately classifies, reserves and charges off problem loans in accordance with the relevant accounting and regulatory guidance. “
The banks have used ‘the financial crisis’ as an excuse for their underwriting that lead to non performing loans for a while now and the FDIC often takes the path to least resistance in getting them to admit to unsound or unsafe lending practices. In the case of Amalgamated it’s odd that they didn’t not deny the FDIC consent order if they just stated above they are operating within regulatory parameters. The FDIC on the other hand was pretty clear on detailing that the Bank has to make sure they are charging off the loans that have stopped paying for more than 90 days correctly.
The FDIC enforcement action states, “Elimination or reduction of such assets with the proceeds of other Bank extensions of credit shall not be considered ‘collection’ for purposes of this paragraph.”
Meaning the bank can’t just extend more credit to borrowers that don’t pay to make the loans look performing. If they do it effects their risk-based capital levels and bottom line numbers. In fact according to the Banks 6-30-2011 Call Report they have $122 million of nonaccrual loans. When you compare that to their Allowance for Loan and Lease Loss (ALLL) it shows a 3:1 ratio.
Ralph Hutchinson, a 20 yr former federal regulator who now consults to banks who get in trouble with the FDIC says, “Their noncurrent loans to their ALLL(loan loss allowance) is out classed. Typically this ratio for a sound bank is a 1:1 ratio. They have approximately only $35 million in ALLL to cover the $122 million in non performing loans on their books.”
Hutchinson thinks their loan loss reserves are under reserved by about $100 million.
“In my opinion the bank will need another $100 million in ALLL reserves and on top of the $75 million to recapitalize the bank because the ALLL will burn right through.”
Until the FDIC and the banks shareholders approve the $100 million common stock investment by WL Ross VI fund and The Yucaipa Companies fund, their Tier One risk based capital is only $304 million. The FDIC has stated within a year they have to get their capital level to 7% and within two years up to 8%. Now with the $100 million investment added into the capital, stated on their last Call Report, it would raise the capital level to 9%. From the outside that makes it look like they fixed one of their problems.
Amalgamated said in their statement this morning, “A key goal of the Bank, which is also reflected in the Orders, is to raise its capital levels to current industry standards. The investments by Yucaipa Companies and WL Ross will enable the Bank to comfortably exceed the increased capital levels established in the Consent Orders well ahead of the time frames set forth in the Orders.”
But Hutchinson who reviewed Amalgamated’s uniform bank performance report back to 2008 thinks otherwise and says this bank is really on the verge.
“Because they don’t have enough loan loss reserves set aside they will burn through at a third to half of that investment instantly. In reality the capital ratios are now just above 3% and at 3% the charter can be seized,” says Hutchinson. “The UBPP report shows they are in the top percentile compared to their peers with their noncurrent/nonperforming loans at $122 million. Half or more could tank in the next few quarters so the burn rate is significantly higher to recapitalize the bank and maintain 7% stepped up to 8% capital levels the next year per the FDIC consent order.”
The bank also appears to be downplaying the seriousness of the FDIC consent order. This morning they said in a written email statement, “The Orders contain specific commitments by the Bank to resolve certain issues identified by the FDIC and the Banking Department in their Joint Report of Examination of the Bank as of December 31, 2009, which was conducted during the summer of 2010. Since the time of the examination, the Bank has been working to resolve these issues, and has largely completed addressing them. “
Really – Certain Issues? Why not just name them such as the fact that prior management had to be cleaned up and the board was ordered to do more oversight of management actions.
Hutchinson explains “This is a formal action they received. It’s has the same teeth as a Cease & Desist Order and it’s legally binding in a court of law. If the Bank had addressed everything the FDIC was asking it to do they wouldn’t have issued a formal action almost two years later.”
Amalgamated Bank’s next set of financials to be stated in a Q3 Call Report has to be in by the end of the month. It’s likely they are negotiating with the FDIC still about how those numbers will look. Hutchinson still thinks some of those call reports will have to be restated. But still it could be 90-120 days before changes show up in the FDIC database and it will be interesting to see if the outside private equity investment has to pony up more to keep the bank capitalized or just bows out of the deal all together.
A spokesperson for Occupy Wall Street has not responded to questions regarding if they will keep the donated funds in Amalgamated Bank.