FDIC auctions apt to hurt some banks
Sale of assets may spur write-downs
NEW YORK - An FDIC plan to auction more than $1 billion in assets seized from failed banks next month, including a loan to build a W Hotel in Atlanta, may trigger write-downs that weaken lenders nationwide.
Almost half of the loans were originated by Silverton Bank NA, whose collapse in May was the biggest in Georgia history. Community banks that joined Silverton in providing $80 million for the hotel-condo complex, as well as backing for 39 other projects, could be forced to write down their stakes to reflect sale prices.
Of the $41 billion in assets seized from failed banks and held by the Federal Deposit Insurance Corp. as of the end of January, $15.6 billion are real estate loans and about 4 percent of those involve participations by other lenders, spokesman Andrew Gray said.
“These banks can’t believe that the regulator they pay to protect them is going to sell these loans to someone who can flip them and cause them serious losses,’’ said Robert Reynolds, a lawyer in Tuscaloosa, Ala., who represents 25 lenders that took part in financing the W Hotel.
“Our banks just cannot believe they’re being treated in a way that ultimately hurts the FDIC’s insurance fund, because some of them are right on the edge.’’
A total of 140 banks failed last year, and FDIC chairwoman Sheila Bair has said the number may be higher this year. The agency said 702 banks were on its “problem’’ list as of Dec. 31.
The FDIC’s insurance fund had a deficit of $20.9 billion at the end of the year.
“This whole thing is a mess waiting to happen across the country,’’ said Geoffrey Miller, a professor of securities law at New York University. “Unlike the subprime mortgage problems, which hit mostly bigger financial institutions, the commercial real estate crisis is going to hit mostly smaller and regional banks.’’
The FDIC is “required by statute to maximize its recovery on receivership assets,’’ said Greg Hernandez, an agency spokesman. “This is achieved through a broad, competitive bid process.’’
The agency is also trying to encourage retirement funds that control more than $2 trillion to buy all or part of failed lenders, said people briefed on the matter.
The sale of loans from failed banks in 2009 brought on average 43 percent of their book value, according to the FDIC. Nonperforming loans, those on which the borrower has defaulted or there is little prospect of repayment, were sold for 26 percent of book value, on average.
