Posts (RSS)Texas Bank Crushed By California Foreclosed Houses for Sale
The $13.5-billion Guaranty Bank based in Austin, Texas will be closed by the Federal Deposit Insurance Corp. this week, marking the second-largest bank failure in 2009.
According to bank analysts, the bank was crushed by its option adjustable rate mortgage loans, which comprised nearly one-third of its single family home loan portfolio.
In addition, the bank had provided $1.2 billion in loans to homebuilders primarily in California, where many homes turned into repo houses for sale when borrowers failed to pay their home loans.
In the second quarter, Guaranty declared a loss of $174 million, according to a report from the Office of Thrift Supervision. The bank tried but failed to raise additional capital.
Shares of the bank have declined by over 95 percent since 2008. Among prominent stockholders are hotel businessman Robert Rowling and corporate investor Carl Icahn.
Guaranty would be the fourth Texas bank to fail after the collapse of the housing market. It would also be the second largest bank failure in Texas, based on FDIC reports. The largest in the state was the bank failure of $17.1-billion First Republic Bank of Dallas in July 1988.
According to some reports, Spain-based Banco Bilbao Vizcaya won the right to acquire the bank in a bidding.
Other banks reported to have filed their bids to buy Guaranty were the newly-chartered bank of Gerald Ford and his private equity partners, JPMorgan Chase and Toronto Dominion.
According to several analysts, Guaranty Bank’s failure is significant, but it is not as staggering as the failure of banks in the 1980s when the energy-industry-driven construction boom collapsed.
During the years from 1980 to 1994, 599 banks in Texas collapsed. In 1989, a total of 223 thrifts and other banks closed, equivalent to four bank failures every week.
Dick Evans, head of Cullen/Frost Bankers, said Texas now has fewer housing-related problems than other states because its housing sector, having learned from the crisis in the 1980s, did not allow home prices to shoot up. Cullen/Frost Bankers acquired some of the failed banks in the 1980s.
According to the Federal Housing Finance Agency, home prices across Texas declined by only 0.6 percent compared to 2008. Evans, however, said that while banks in Texas are holding up much better than those in other states battered by foreclosures, banks across the state expect slower growth.